What About Patient Accountability?

The debate between payers and providers over the responsibility and accountability of healthcare costs certainly didn’t begin with the drafting and eventual passage of the ACA, nor will it end. Like the Hatfields and McCoys, a war of words (and figures) has been waged between these primary stakeholders in the healthcare industry for decades. There is a fundamental distrust and disagreement regarding who is responsible for the unsustainable growth in healthcare costs – and who should ultimately be responsible and held accountable for the standard “healthcare system” objectives of increasing efficiency, decreasing costs, and improving outcomes.

To bend the cost curve, many of the recent conversations and reform efforts have been focused on population health management, care coordination, compliance, and engagement. New technologies and regulations are emerging daily with a promise to increase the efficiency and effectiveness of healthcare. New business and care delivery models (and old ones with new names) are being developed and deployed, such as ACOs and Medical Homes. And, most of these new ideas and solutions are being described as “consumer-driven,” “patient-centric,” and “integrated,” yet most are failing to produce the results that politicians, employers, and consumers are aggressively demanding.

Meanwhile, the heavily scrutinized leaders of health insurance companies and hospital systems continue to blame each other for the meteoric rise in health care costs – and they should be – but not as healthcare executives but rather as healthcare consumers… and consumers of cigarettes, alcohol, hamburgers, and home entertainment.

To clarify this point, I recall my experience at the 2010 World Health Care Congress in Washington DC (April 12-14). It was the first major industry conference shortly after the ACA passed (March 23). A morning panel of shell-shocked CEOs from leading payers and providers engaged in a “healthy” yet intense discussion about conflicts of interest, cost-shifting, risk-sharing, accountability, insurance exchanges, consumerism, fee-for-service vs. value-based, supply/demand imbalances, the aging population, end-of-life, fraud and abuse, technology integration and interoperability, industry consolidation, regulations, EHRs and meaningful use, and the economy, among other timely topics.

As soon as the session ended, the industry leaders charged with creating solutions for our national healthcare crisis flooded out of the auditorium into the hallways of the convention center. I observed in dismay as many shuffled outside for a smoke break in finger-numbing temperatures while the masses consumed sugar-loaded pastries, donuts, coffee drinks, juices and soft drinks from well-catered tables. Did I mention that we had all been sitting in chairs all morning?

If we really want to get serious about “bending the cost curve,” then we need to address our society’s apathy regarding unhealthy behaviors and environments. There is overwhelming evidence that prevalent yet preventative consumer behavior, such as smoking, alcohol abuse, poor nutrition, and lack of physical activity, are imposing enormous costs on our society. Chronic conditions that are caused or worsened by unhealthy lifestyles, such as heart disease, diabetes, asthma, obesity, and cancer, account for more than seventy-five percent of U.S. healthcare expenditures. To truly solve our healthcare crisis, patients and consumers of healthcare must assume more accountability.

Surely, that is one thing payers and providers should agree upon!

Together, these key stakeholders need to redesign our healthcare system with new solutions that will drive patient accountability and reward healthy behavior. Just as banks utilize credit ratings and the automobile insurance relies upon driving records to help manage their risks, the healthcare payers and providers need a standard means to help manage their risks. It’s quite simple in these other scenarios I referenced. If we are financially irresponsible, then it costs us more to borrow money. If we drive irresponsibly, then it costs us more to purchase car insurance.

There is overwhelming evidence that individuals with unhealthy habits pay only a fraction of the costs associated with their behaviors. Most of the expenses caused by their decisions and lifestyle are passed on to the rest of society in the form of higher insurance premiums, taxpayer-funded government expenditures for healthcare, and disability benefits.

Many payers, particularly self-insured employers, are already leading the charge to shift the risk and responsibility associated with healthcare directly to individuals. A recent survey by Hewitt Associates found that nearly half (47%) of employers either already use financial incentives or plan to use financial incentives during the next three to five years to penalize and/or reward the health-related behavior of their employees.

Section 2705 of the Patient Protection and Affordable Care Act (ACA) is a provision that holds significant potential. In 2014, employers may apply up to 30% of the total amount of employees’ health insurance premiums (50% at the discretion of the Secretary of Health and Human Services) to provide performance-based wellness incentives. This represents an attempt by the government to rein in healthcare costs associated with unhealthy behaviors. The clear objective of this ACA provision and the political rhetoric behind it is to improve health-related behavior and reduce the prevalence of chronic disease caused by unhealthy lifestyles.

These incentive programs have drawn criticism from those concerned that holding individuals responsible for their health, particularly through the use of penalties, violates individual liberties and discriminates against the unhealthy. And, as someone whose mother suffered from Multiple Sclerosis, a dreadful chronic disease without a known cause or cure, I can surely understand their argument but there must be a logical set of conditions under which a new incentive-based system can be developed and deployed in a responsible, ethical manner to contain healthcare costs and encourage healthy behavior. This issue was central in the historic Supreme Court hearings on the constitutionality of ACA’s mandate that just wrapped-up.

Read our blog next week for a proposed measurement system that will help drive patient accountability and promote healthy behavior.

John Montague

John Montague is a Vice President at TripleTree focused on innovative companies and solutions that are shaping the future of healthcare. E-mail John at jmontague@triple-tree.com

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Behavioral Healthcare: Five Key Factors Are Driving Sector Consolidation

Mergers and acquisitions, public equity financings and private equity investments in the Behavioral Healthcare industry closed with a bang in 2011, and the momentum has continued into 2012. Demand and access to behavioral healthcare services, including treatment for mental health and substance abuse disorders, has accelerated in recent years due to a number of favorable industry and legislative trends.

Within this highly fragmented industry, Acadia Healthcare Company, Inc. (NASDAQ: ACHA) has pursued an aggressive growth strategy in the last twelve months, executing a number transformative strategic decisions:

• Equity Offering: On December 15^th, Acadia completed a public equity offering of 9.5 million shares at $7.50 per share for total net proceeds of $67.5 million. Acadia plans to use the offering proceeds principally to fund its acquisition strategy. The Company certainly did not waste much time, announcing on January 5^th that is has signed a definitive agree to acquire three inpatient hospitals from Haven Behavioral Healthcare for $91 million in cash.
• Reverse Merger: On November 11^th, Acadia completed its merger with PHC, Inc., d/b/a Pioneer Behavioral Health (AMEX: PHC) and as a result became the leading publicly traded pure-play provider of inpatient behavioral healthcare services, based upon licensed beds.
• Add-on Acquisitions: Acadia purchased MeadowWood Behavioral Health System, an acute care psychiatric hospital, and Youth and Family Centered Services, Inc., an operator of 13 inpatient and outpatient psychiatric and behavioral health facilities, in July and April of 2011, respectively.

Private equity investors are also playing a meaningful role in this sector, accounting for roughly 30% of overall activity during 2010 and 2011. Just prior to the new year, Cressey & Co, a healthcare-focused private equity firm, acquired a majority stake in InnerChange, a residential treatment provider offering therapeutic services and accredited academics to young women with behavioral, emotional and substance abuse problems. This is investment marks the Cressey’s second investment in the behavioral healthcare sector; Cressey invested in Haven Behavioral Healthcare Inc. in 2008.

So what industry dynamics are catching the attention of both the public and private equity investors?

The following are a few of the more compelling attributes that in our view, will fuel the growth, investment and consolidation in the market.

1. Large and Growing Market. National expenditures on mental health and substance abuse treatment are expected to reach $239 billion in 2014, up from $121 billion in 2003, representing a compound annual growth rate of nearly 7%.The demand for behavioral health services has increased in recent years due to earlier and more accurate diagnosis of mental health conditions and the de-stigmatization of seeking treatment. It is estimated that approximately 6% of people in the US suffer from a seriously debilitating mental illness and over 20% of children either currently or at some point in their life, have had a seriously debility mental disorder. Moreover, the influx of returning US veterans from Iraq and Afghanistan will result in a growing percentage of veterans with serious mental and substance abuse disorders including schizophrenia, bipolar I disorder, PTSD and major depression.
2. Favorable Legislative Initiatives.  Recent legislative trends are increasing access to industry services as more individuals obtain insurance coverage in 2014. The Mental Health Parity and Addiction Equity Act (“MHPAEA”) of 2008, which went into effect in January 2010, requires health plans to provide coverage for mental health services on par with conventional medical health services and forbids employers and insurance companies from placing greater restrictions on mental healthcare compared to other conditions. This legislation not only expands coverage for the existing insured population, but also for the newly insured in 2014, a meaningful percentage of which are said to suffer from a mental health conditions.
3. Diverse Payor Mix. Compared to other healthcare services sectors, behavioral health is reimbursed by a diverse mix of public and private payors. With the exception of a few segments within behavioral health, no single payor type (state/local/federal, Medicaid, Medicare, commercial, private pay) dominates that market. That said, Medicaid represents a significant source of funds, so potential cuts to Medicaid funding should be watched closely.
4. Attractive Financial Model. Compared to general acute care hospitals, which typically generate mid-teens margins, inpatient behavioral healthcare enjoy margins in the range of 20-40% for acute hospitalization and 15-25% for residential treatment. Maintenance capital expenditures are minimal at approximately 2% of revenue.
5. Niche markets / delivery models… Downsize fitness. The behavioral healthcare industry includes a number of different sub-segments defined on multiple dimensions, including age, gender, illness severity, diagnosis, delivery model and payors. As a result, tremendous opportunity exists for providers to expand into attractive niche/specialty markets. Companies such as, Downsize Fitness, are pursuing the obesity and eating disorder market(s) by developing niche-specialized facilities. Downsize fitness is new to the fitness center scene and is designed specifically for the chronically overweight and obese individuals. Trim men and women are not allowed as members, providing a more welcoming environment than in most conventional gyms.

With healthcare reform just around the corner, TripleTree expects the barrage of M&A and investment activity to continue and even accelerate. We look forward to sharing our thoughts as this market continues to evolve – let us know what you think.

Jon Hill

Jonathan Hill is a Vice President with TripleTree covering the healthcare industry and specializing in population health management and facility-based services.  You can contact him at jhill@triple-tree.com.

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Would a Simplified Doctors Bill Reduce Patient Confusion?

With increasing frequency, the trend toward healthcare provider “transparency” is in the news.

One vocal and prominent proponent of the concept is Dr. C. Martin Harris of the Cleveland Clinic, whose goal is improved transparency and patient access across our health care system.  Conceptually it sounds great, but would a better patient understanding of the financial aspects of their care (i.e. bills) influence their behaviors when selecting a care provider?

Dr. Harris is pushing for the development and utilization of patient-centric financial management tools that will expose the true costs associated with patient care.  Such tools could allow patients (consumers) to analyze their “actual” medical costs as well as their insurance coverage to help them better understand, in real-time what is owed for a given treatment.

Dr. Harris is shining a light on the patient confusion surrounding what to pay, who to pay and when to pay it. His view calls for a simplified system of transparent billing (the financial side of healthcare transactions) which “would clearly optimize the value of care to patients.”

Approaches such as specialized cards that initiate any healthcare-related transaction and then connect to online portals might be a starting point; and could even include connections to Centers for Medicare & Medicaid Services (CMS) via its Consumer Assessment of Health Providers and Systems (CAHPS®).   But will that be enough to entice consumers (patients) to gravitate toward a specific healthcare provider if they could deliver:

• Better value (i.e., the same or better medical care for cheaper)
• Enhanced customer service (i.e., overall patient experience), or
• Improved medical outcomes?

These three post reform drivers seem to be reasonable predictors of consumer preference – however its less clear whether a consumer would compare two or more healthcare providers based on billing statement transparency (clarity) alone.

Provider billing transparency is for now likely a “nice-to-have” rather than “must have” component of patient experience – and without the urging of consumers or employers the solutions envisioned by Dr. Harris won’t likely emerge.   Rather, patient experience trends, improved outcomes and calculating value for healthcare dollars spent, will likely persist as the near term focus of vendors serving the healthcare provider market.

Let us know what you think.

Jamie Lockhart

Jamie Lockhart is a Vice President with TripleTree covering healthcare software and service providers with a focus on consumer directed healthcare.  You can contact him at jlockhart@triple-tree.com

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Healthcare: Survival of The Fittest

According to Levin and Associates, mergers and acquisitions in the healthcare industry totaled over $227 billion, an 11% increase over 2010 and the fourth-largest year of the past decade. Even more interesting, is that the value of healthcare services deals increased 43% while technology decreased 2%. Hospital systems are moving into new communities, integrated health systems are acquiring additional delivery system assets, managed care networks are growing, and specialty care service businesses are expanding their footprint—to be well-positioned for survival in a post-reform world.

This is the type of data we shared with TripleTree’s Health Executive Roundtable–the investment bank’s “think tank” comprised of a diverse group of health industry executives with backgrounds ranging from banking, medical device, education and life sciences; to food services, technology, human capital management, and compliance.

We asked each Roundtable member: “What are the key trends that will emerge from this consolidation?”

Their independent and unique perspectives are published in:

Viewpoint: A Kaleidoscope of Insights Regarding Growth Opportunities amid Consolidation in the Healthcare Industry.

You can view and download the report here.

In addition, you are invited to participate in a webcast on Wednesday, February 29, 2012 from 12-1 pm CST where we will discuss the highlights and key themes from the report. You can register for the webcast at: https://www2.gotomeeting.com/register/771534410. After registering you will receive a confirmation email with information about joining the event.

As a preview. the following are the highlights and key themes from the report:

1. Healthcare costs will increase. It’s all about supply and demand. Market consolidation sets the stage for increasing healthcare costs as fewer, large, hospital and healthcare systems leverage their size and strength during unit cost contract negotiations with payors.
2. Contraction of the delivery system = expansion of demand for meaningful innovation to combat the pressures of #1. However, the only “new new things” that will survive are those that solve real problems with a scalable, cost-efficient solutions that integrate with the existing healthcare infrastructure.
3. B to C solutions require B to B revenue streams. Consumer adoption is critical for demonstrating relevance, but consumers don’t typically fund high growth enterprises.
4. “Health and Wellness” will transition to “Life and Well-Being.” Payers and employers will seek innovations that support life and well-being as the distinction between work, home and health become increasing blurred.
5. Healthcare gaming will emerge–actually, it will explode. Gaming platforms that integrate entertainment, interaction, and achievement will be a transformational solution for driving consumer engagement and behavior change as well as provider education, training, delivery, research and cost containment.
6. Electronic health records will evolve into smart health information technology ecosystems. These ecosystems will (finally) enable the coordination of care and drive shared accountability among healthcare providers.
7. Doctors will be loyal to a single system. (Smart) hospitals and health systems will attract and retain doctors with mobile and wireless software applications that enhance personal income and lifestyle.
8. The most disruptive solutions are likely to come from outside the traditional healthcare industry. The core assets and capabilities that fuel retail, consumer packaged goods, banking, and telecommunications, for example, can be translated into unique and meaningful healthcare solutions by companies and individuals not trapped in parochial “we’ve always done it that way” thinking.

A “perfect storm” is brewing where science and technology have no boundaries, and the convergence of reform and unsustainable medical costs are generating opportunities for change. I can’t think of a more exciting time to be in healthcare.

I look forward to your feedback via blog post comments, personal email, or during the webcast.

Archelle Georgiou

Archelle is a Senior Advisor and Chair of TripleTree’s Healthcare Executive Roundtable, and focused on creating health through innovation.  You can follow Archelle on Twitter, on her blog, or email her at ageorgiou@triple-tree.com.

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ACOs: Good News for Skeptics

As TripleTree continues to cover the rapidly evolving opportunities associated with health reform, I have remained an optimist about the potential for the many health reform experiments included in the healthcare reform bill to create meaningful healthcare savings in the long term.   In particular, I have been hopeful about the various shared savings programs to meaningfully impact cost and quality in the healthcare system, and momentum has continued to build, with CMS naming 32 organizations to the Pioneer ACO program in December.

This is what makes the recent news from CBO disheartening.  Last month, they released an analysis showing that ten different demonstration programs – six disease management and four value-based payment approaches – have usually not had any meaningful impact on reducing Medicare spending.    One of these value-based demonstrations “allowed large multispecialty physician groups to share in estimated savings if they reduced total Medicare spending for their patients.”

Sound familiar?  Troublingly, this program had little to no effect on Medicare expenditures.  (The only program of the four that did have an effect on costs used bundled payments for heart bypass surgeries.)

Adding to the bad news, Leavitt Partners released a study late last year showing that of the 164 accountable care organizations (ACOs) they have identified (note that the Leavitt definition of ACO overlaps with – but doesn’t perfectly align with – the CMS definition), were somewhat evenly distributed across 41 of 50 states.  However, these same 164 were found in just 144 of the 306 hospital referring regions (HRRs) – a benchmark of regional health care markets where patients are referred for care.   While a number of these HRRs had three or more ACOs, large swaths of the country had yet to see even one yet suggesting that perhaps ACOs are springing up largely to compete with each other, rather than focusing on finding geographic areas where a new care delivery model could meaningfully reduce costs.  This is one of the issues that skeptics of the model are concerned about, as my colleague highlighted recently.

In any case, critics of the healthcare reform have certainly gotten some new ammunition in the past few weeks – we’ll be keeping an eye out for some good news to highlight in a future post.   As before, I still remain optimistic about the change in mentality that CMS’s ACO program seems to have brought in how payers and providers are rethinking the traditional and rigid zero sum game of treatment and reimbursement, allowing new ways for commercial payers and care delivery organizations to partner to deliver quality care.

Let us know what you think.

Conor Green

Conor Green is a Vice President at TripleTree covering the healthcare industry, and specializing in revenue cycle management and tech-enabled business services. You can email Conor at cgreen@triple-tree.com.

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HHS Reform Timelines…Wiggle Room In Sight?

Aggressive IT deadlines have left the healthcare industry scrambling to meet a host of regulatory mandates spanning HIT adoption, payment transaction methodologies, coding standards, and state-run health insurance exchanges.  Hundreds of new regulations have been implemented over the past couple of years, leaving the industry torn in how limited time and resources are utilized among care delivery, quality and cost reduction initiatives, process/infrastructure modernization, and increasingly stringent regulatory reporting requirements.

Hospitals and doctors have been especially overwhelmed with regulations and have been reprioritizing investments to support EMR implementation, Meaningful Use qualification, and what is expected to be a tidal wave of new entrants into the system once the 2014 health reform mandates become effective.

The American Medical Association (AMA) set newswires and the blogosphere abuzz last week when they publically voiced opposition to the transition to ICD-10 coding stating “the implementation of ICD-10 will create significant burdens on the practice of medicine with no direct benefit to individual patients’ care.”  Some dispute the AMA’s move as self-serving given their interests in maintaining the stature and importance of the Current Procedural Terminology (CPT) code set.  Nevertheless, whether the AMA’s move was defensive or not is irrelevant – the vast majority of providers and a meaningful cross-section of payers are ill-prepared to meet the ICD-10 transition deadlines that CMS currently has in place.

To the relief of payers, providers, vendors, and states, the department of Health and Human Services (HHS) and the Center for Medicare and Medicaid Services (CMS) have recently backed off from a few key deadlines.  While these announcements by no means cancel any existing mandates, at a minimum they buy the industry some time to comply with the overarching legislative intent of increasing coverage among the uninsured population, incentivizing IT adoption, and driving improved levels of care delivery.  Of note:

1. HIPAA 5010– CMS announced that it would hold off enforcing the HIPAA 5010 transaction sets until March 31, 2012, a 90-day extension to the original enforcement date. While the compliance date will technically remain intact, relaxing the enforcement date “encourages all covered entities to continue working with their trading partners to become compliant with the new HIPAA standards and to determine their readiness to accept the new standards as of Jan. 1, 2012,” as stated in a release by CMS’ Office of E-Health Standards and Services (OESS).HIPAA 5010 is widely viewed as a precursor to the impending transition to ICD-10 in October 2013. The enormity of that effort will dwarf HIPAA 5010. This week’s announcement foreshadows further delays yet to come.
2. Stage 2 Meaningful Use– HHS announced this week that it would delay its compliance date for Stage 2 Meaningful Use from 2013 to 2014. The extension specifically impacts eligible providers that qualified for Stage 1 Meaningful Use in 2011. Providers, vendors, and government work groups alike have noted the timing issues and inherent disincentive posed on early adopters attempting to adhere to criteria that have yet to be finalized. The Health IT Policy Committee, a federally-chartered advisory panel to HHS, recommended these changes earlier this year to the endorsement of Farzad Mostashari, M.D., ONC’s National Coordinator for Health Information Technology.HHS Secretary Kathleen Sebelius acknowledged the progress to date, referring to the reported doubling of HIT adoption over the past two years. In its move to extend the Stage 2 deadline HHS has smartly protected its initial success by attentively listening and responding to the needs of an overwhelmed provider community.
3. Health Insurance Exchanges – HHS (though the Center for Consumer Information and Insurance Oversight – CCIIO) has seemingly relaxed (or at least clarified) a critical deadline for the states to stand-up their Insurance Exchanges. This week, CCIIO extended a grant deadline by six months until June 2012 from December 2011. Also CCIIO has committed funding for the establishment exchanges beyond the previous January 1, 2014 deadline. Now states have until December 2014 to apply for grants for continued exchange development provided that at least a portion of the exchange is operational by January 1, 2014.

While it is not entirely clear why these significant changes coincided in timing – perhaps it had to do with the resignation of controversial CMS chief Don Berwick – these reprieves are no doubt welcomed within the industry. The extra time will give payers, providers, and states some extra time to meet their compliance mandates.

This extra time should not be squandered. Industry participants must continue to plan for and implement systems that support new EDI standards within 5010, the reporting requirements of Stage 2 Meaningful Use, and the complexities of insurance exchanges. Furthermore, the real value in any of these mandates is not meeting the minimum requirements of the mandate itself, but rather the powerful and compelling capabilities that each enables in terms of improved communication and workflow automation that will enable entirely new quality and cost initiatives.

We’re optimistic that the timeline flexibility of HHS regarding timelines will promote more thoughtful approaches, investments and implementations across all impacted organizations, let us know what you think.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

Seth Kneller

Seth Kneller is an Associate at TripleTree covering the healthcare industry, specializing in revenue cycle management, clinical software solutions, geriatric care and healthcare analytics. Follow Seth on Twitter or e-mail him at skneller@triple-tree.com.

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Preserving the Quality of Care amidst Surging Hospital M&A

Over the past 18 months, the healthcare industry has experienced a tremendous uptick in the volume of hospital mergers and acquisitions. Since January, over 60 transactions have been announced, a 65% increase year over year. While the barrage of activity can be attributed to a number of structural changes stemming from healthcare reform (e.g. emergence of ACOs, reimbursement cuts, reporting requirements etc.), it is clear that non-profit hospitals under mounting financial pressure have become prime acquisition targets for for-profit hospitals and private equity investors.  Vanguard Health’s purchase of Detroit Medical Center and Steward Health’s purchase of Charitas Chrisiti in 2010 marked the beginning of a wave of acquisitions that will likely roll on through 2011 and into 2012.

Source: Ponder & Co. and Irving Levin Associates, Inc.

We believe the hospital industry will continue to consolidate and undergo tremendous structural and organizational changes in the decade ahead. Perhaps Fortis offers a few key principals to emulate in order to ensure the preservation of high quality care. Nearly 80% of U.S. acute-care hospitals are non-profits and a significant portion of them failed to break-even in 2010. Amidst the financial crisis in 2008 and the subsequent sputtering of the U.S. economy, non-profit hospitals have been required to delay critical investments that could meaningfully enhance efficiency and profitability. Concurrently, revenue growth has been challenged by with both price and volume trends. In addition to cuts in Medicaid and Medicare, many Americans are electing to cut back on medical services and are forgoing elective surgeries, the most lucrative procedures for hospitals. With declining revenues and scarce resources for investment in modernized technologies, non-profit hospitals are seeking partnerships with competitors or other investors with much deeper pockets.

So what are the implications of this flurry of recent hospital M&A activity for you and me?

• How will the quality of our care change, if at all?
• Can the culture and mission of a non-profit hospital be integrated with that of a for-profit, often publically traded organization, and how can it affect coordination and communication across the continuum of care?
• Let’s not forget about the reaction of the individuals providing us care. Can these mergers agitate the physicians and result in significant turnover?

While the rationale for many of these transactions makes sense, in theory, integration can be the most critical and challenging component of a transaction. A botched integration plan can have tremendous consequences on the quality of care.

Fortis Healthcare – A Mini Case Study in Consolidation

Although there is not a standard playbook that each hospital can follow, one hospital system has successfully architected an aggressive M&A strategy and may be a model other hospital systems can follow. Fortis Healthcare, one of India’s largest healthcare hospital systems, has experienced tremendous growth since its founding in 2001. Fortis now has 54 hospitals within its system, one-third of which were acquired. Over the past nine years, Fortis has grown its patient capacity and revenue at CAGRs of 40% and 70%, respectively, and has also enjoyed significant margin expansion. What is most remarkable is that this explosive growth has not come at the expense of quality. Fortis continues to deliver clinical outcomes that rival those of Kaiser, Mass General and Mount Sinai.

Hospital	Mortality (%)
Beth Israel Deaconess Medical Center, MA	0.58
Fortis Health Care, India	1.13
Brigham and Women’s Hospital, MA	1.15
Massachusetts General Hospital MA	1.61
Kaiser Foundation Hospital, CA	2.03
State of New York aggregate, NY	2.09
Mount Sinai Medical Center, FL	4.20

Source: Data excerpted from Regina Herzlinger and Pushwaz Virk, MD, “Fortis Healthcare (A),” HBS No 9-308-030 (Boston: Harvard Business School Publishing, 2008), p. 13

• Shared Learnings. The target company should not always be forced into the acquirer’s model. The target company may possess superior “best-practices”, and the acquirer must be willing to accept and implement them into the combined organization.

• Patient Care Delivery. Be mindful of all patient touch points from admittance to discharge. Develop support systems that will guarantee a repeatable, high-end service that exceeds the patient’s expectations.

• Retain Top Talent. The acquirer should be prepared for cultural differences and implement the proper incentives and leadership development programs to retain the top talent. Effective leadership within a hospital system requires a delicate mix of senior clinicians and management professionals.

• Efficient Systems. Measure and quantify clinical and non-clinical processes, identify areas of improvement and eliminate variability. Develop standardized processes that are both replicable and scalable.

Let us know what you think. Have a great week.

Jon Hill

Jonathan Hill is a Vice President with TripleTree covering the healthcare industry and specializing in population health management and facility-based services.  You can contact him at jhill@triple-tree.com.

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ACO Speed Bumps, Courtesy of CMS

We recently reviewed an article outlining the current debate between the American Telemedicine Association (ATA) and Centers for Medicare & Medicaid Services (CMS) regarding the statutory restrictions placed on telehealth by CMS in certain rules effecting accountable care organizations (ACOs).  In summary, ATA is asking that five Medicare requirements that effectively limit the use of telemedicine—by prohibiting reimbursement—be waived or modified.

It is ironic that CMS is supporting unnecessary road blocks to ACO enablement, a care delivery methodology that is a cornerstone of the 2009 health reform legislation.    At the core of the government’s support for ACOs is the idea that Medicare and Medicaid spending is unsustainable and a system that rewards providers for delivering the same (or better care) could be most impactful by better managing patients with chronic conditions, reducing readmissions and minimizing ER visits.

Thus, it seems counterintuitive that new approaches to delivering care (i.e., ACOs), should be encumbered.  As persuasively pointed out by a letter from the head of the ATA to the head of CMS; “telehealth should be an integral part of how ACOs provide healthcare. The benefits of telehealth for Medicare beneficiaries and Medicare program include:

• Reduction of in-person overuse, such as in emergency rooms and preventable inpatient admissions
• Triaging for faster, appropriate specialist care
• Improve[d] patient outcomes and quality
• Increase provider productivity
• Relief for provider shortages
• Reduction in disparities to patient access
• Decrease unnecessary variations in care…”
  – Source

While impactful, yet another memo from the ATA on this same subject was even more persuasive.  Entitled “Recommendations to the Center for Medicare and Medicaid Innovation,” the ATA explored connecting doctors to patients via telehealth instead of traditional office visits, and the significant savings in Medicare spending that could result.  In this memo, the ATA used the example that Medicare spent over $4.5 billion in 2009 on ambulance rides for patients. While it was not argued that this entire amount was wasteful or unnecessary, the memo pointed out that the Center for Information Technology Leadership analyzed this line item and determined that leveraging telehealth would result in $500 million of annual savings.

We haven’t yet seen the reply by CMS to the ATA memo, but it seems that any past reservations about telehealth should be reevaluated to reduce the friction of pursuing the ACO model.  As the ATA’s Administrator ironically points out in his memo to CMS regarding the CMS ‘definition’ of an ACO: “An ACO will be innovative in the service of the three-part aim of better care for individuals, better health for populations, and lower growth in expenditures.  It will draw upon the best, most advanced models of care, using modern technologies, including telehealth and electronic health records, and other tools to continually reinvent care in the modern age.”

Let us know what you think and have a great week.

Jamie Lockhart

Jamie Lockhart is a Vice President with TripleTree covering healthcare software and service providers with a focus on consumer directed healthcare.  You can contact him at jlockhart@triple-tree.com

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Wanted: Smart investors, smart developers & smart policy makers

Ahead of his keynote address at the upcoming Wireless-Life Sciences Alliance Convergence Summit in San Diego next month, Bill McGuire, M.D., recently sat with mobihealthnews (MHN) editor Brian Dolan for an interview on the efficacy of technology in healthcare and the road ahead.

(MHN) How do you characterize the opportunity for wireless health? Could you also provide us with some sense of the current investment climate — a lot of activity? A lot of interest but not a lot of activity?

I like to position it as: How can we build products, services, and systems that facilitate the eventual appropriate health and wellbeing for the people in this country and elsewhere. In pursuit of that and in consideration of all that has been done — both good and bad — and all that is yet to be done, which is significant and formidable, I think the whole area of technology enabled healthcare or mHealth or any term you’d like to apply, offers significant opportunity to meet that end. It still remains to be seen obviously what the most appropriate areas and most beneficial areas will be to accomplishing that. When it comes to investments, of course, there will be a lot of investments in things that don’t make any difference or are not contributory to the kind of outcomes I am describing.

(MHN) What kind of things?

If you look at what has happened in last several years particularly with reform: These huge expenditures that have been directed at technology applications in healthcare. I’m afraid we will see that we have spent an enormous amount of money for marginal or no gain. It’s very indiscriminate. That’s classic healthcare, though and classic investing: ‘Let’s just throw money at things.’

You have the whole idea of applications on cell phones for example. Embedded among [the thousands] of health apps out there are probably a few that will make a difference in the lives of some people. Those apps should theoretically lower costs and improve outcomes, but most of these apps exist because we happen to like apps, it’s a nice story, so we chase them. Discerning what is ultimately going to make a difference and result in the kind of outcomes we are looking for, which is differentiated from just investing money, is the critical issue. The smart investors, smart developers, smart policy makers and so on will benefit from that. The land grab that is going on right now — just throwing money at it — is a little bit misguided.

Another issue is the lack of interactivity among these technology applications. The fragmentation and silos continue. Rather than determining how to piece a number of necessary components together, we have a lot of independent efforts out there to chase after something. We ask for electronic medical records (EMRs) but we don’t necessarily put out standards of performance and interactivity between them. So when someone comes along and asks to gather data or information we know that we can’t get it from each and every one of them.

(MHN) So EMR efforts are misguided?

The amount of money that is being thrown at this stuff relative to the value that it is going to return to us is ridiculous and it will not prove to offer up the kind of end gains that we are touting. Those are health outcomes gains and financial gains in terms of lowering costs. I see nothing that suggests this is going to dramatically improve outcomes, improve access to care for people who had heretofore not had access to care and certainly nothing that suggests that it is going to lower the costs of healthcare in America. People are rushing to do various EMRs simply because the government says we will pay you to install it. If you talk to people who try to extract data from various EMRs they would tell you that there is no consistency in the expectation to do it from many different systems and yet we are spending billions of dollars on this.

(MHN) Let’s switch gears back to wireless health. Are any companies on the right path? If you aren’t comfortable naming companies, what are some specific use cases that you think are promising?

I will be necessarily cautious about the specifics because I don’t want to come across as endorsing or refuting things that I know relatively little about specifically. Let’s start with a concept. What I think we are talking about in some way parallels what we are seeing from efforts in education. As we confront challenges around resource availability and the spacial relationship between the users (the someone in need) and the resource. The ability to take content out to individuals — which is what mHealth or various mobile technologies have done — becomes a substitution for asking those people to go to the content source in a different way.

It’s sort of like: If the cost of gas goes up and bus costs go up, how do we really expect kids to learn about the arts when they used to get on a bus and go on a field trip to a museum? Museums are beginning to take their content to the students where they live. The Metropolitan Opera says we can’t expect everyone to come to the Met, but opera is an important cultural element for society. So they started filming it and showing it at theaters around the country, which has been wildly successful. In these cases we are looking for ways to bring content out to touch people when we can’t in essence do it physically.

In healthcare the same principle exists. People who live in remote sites do not have access to care — primary care to say nothing of secondary or specialized care. How do we help them manage their health and wellness and help deliver services that might be beneficial to acute but relatively everyday problems? That is the kind of application opportunity that the technology provides. Whether that includes telehealth, applications, gaming… that’s the huge opportunity.

(MHN) Any closing thoughts?

I think healthcare might be unique in that it is a space where technological advance has not positively influenced efficiency or cost reduction. Just across the aboard it has not happened. Costs keep going up year after year after year. Why is that? The discussion we hope to have at the WLSA Summit is around how the companies presenting are in fact going to accomplish the needs of both enhancing efficiencies and lowering costs while achieving improved health outcomes for people. I expect it will be a lively discussion about disruption and how mobile will play into that.

Dr. McGuire is widely respected for his uncensored clarity about what has, hasn’t and can work relative to advancing the health of our nation.  This interview offers a sneak peak at the keynote remarks he will deliver during the WLSA Convergence Summit on May 11, 2011.  Click here to register.

Bill McGuire, M.D. is the former CEO of UnitedHealth Group and current Vice Chairman of TripleTree Holding Company.

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Perpetuating the Increased Quality of Care Cycle through Value-Based Purchasing

With the majority of talk about healthcare reform centered on the individual / consumer mandate and universal coverage, many are missing another positive change proposed by CMS: value-based purchasing.

Value-based purchasing (VBP) has underlying implications on five themes:

• Measuring the patient experience
• Measuring clinical quality
• Market pricing, especially local market pricing
• Executive and clinician compensation
• The changing role of technology and technological requirements

The essence of VBP is that buyers of healthcare (including individuals and plans) should hold providers accountable for the quality of care provided.  Much like consumer satisfaction and pay-for-performance in other industries, healthcare providers are now being held accountable for not only providing the required care, but providing a quality product.  However, the question of rating the quality of care is a bit more difficult than showing compliance with a “Six Sigma” type of program.  By bringing together outcomes-based data with cost data, it is possible to show an improvement ratio such that increasingly positive outcomes are equated with reduced or targeted spending – below are a few considerations:

• Linking patient satisfaction and quality: Measuring the patient experience is trending toward monitoring key outcomes in 17 clinical measures (including patients’ views on communication with staff and doctors, cleanliness and quietness of the hospital and pain management) across five healthcare categories, including acute myocardial infarction, heart failure, pneumonia, healthcare associated infections and surgical care improvement.  Based on a hospital’s score across these measures and categories, this will impact diagnostics-related group (DRG) payments as soon as 2013.  By 2014, mortality outcome measures for additional health conditions and hospital-acquired conditions will be included.
• Clinical quality – another important VBP benchmark:   As providers are measured and compensated accordingly, top tier providers will begin to quickly separate from the pack.  However, critical access hospitals will need to remain accessible, regardless of their quality measurement.
• Market pricing and VBP:  With provider compensation schedules initially being implemented as a penalty rather than a bonus, areas with poor outcome metrics will see the cost of providing care rise. Additionally adding to the skewing of local market pricing, an incentives algorithm will be implemented, meaning high performing hospitals will continue to perform better than those being penalized, due to the financial incentives providing new resources for a high performing hospital.

The link between quality of care, the provider’s income statement, and executive and clinician compensation also becomes much more clear and real. As the provider receives additional incentives for increased quality of care, the employees of the provider will likely see performance compensation tied to the quality of care metrics for the hospital. A higher performing provider will attract higher paid experts with better backgrounds, perpetuating the increased quality of care cycle.

Underpinning all of this is the increasing role that technology will play in the healthcare system. In order to document the quality of care metrics, a clear link to data will need to be established at the point of care. This means that data warehousing and analytics will be paramount. Sophisticated pricing and measurements of quality and satisfaction will be derived from the data and technology in use.

Value-based purchasing has the potential to radically alter how both providers and patients view healthcare.  Our team is actively advising business leaders and investors with some thinking about how healthcare will cease to be an intangible product that is provided at any cost, focusing instead on how to plan the market dynamics or “rankings” and “customer service”.

Have a great week.

Adam Link

Adam Link is an analyst at TripleTree covering healthcare delivery models, specializing in software and wireless health.  Follow Adam on Twitter at AdamJLink or email him at alink@triple-tree.com.

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