A view from the Center

Deloitte's Life Sciences & Health Care Blog

Goldilocks and the three bearers of value-based health reform

While serving as a panelist at a recent health care conference in New York, an audience member asked me how we’re advising clients to help them navigate the transition from volume to value-based systems.

So I talked about Goldilocks, using the time-honored children’s story as a metaphor for steering clear of extremes, maintaining a steady pace, and not going too fast or too slow. Heads nodded in agreement, a sign I was striking a responsive chord.

I’m not comparing the complexity of current health reform to a fairy tale. But, choosing the path that’s “just right,” to quote Goldilocks herself, is central to an organization’s ability to adapt to a value-based care system that relies on new and creative collaborations and data analytics to reduce cost and improve patient outcomes.

In this era of health reform and the changes it has generated, health care and life sciences organizations are facing an inexorable shift from volume to value as a basis for operations and payment. So what’s needed to win the market shift in a value-driven environment? Three factors in particular:

  • Developing new industry relationships that promote collaboration with other health care parties that enable better clinical and financial risk management. Incentives need to be aligned and relationships managed effectively.
  • Implementing mutually-agreeable financial arrangements by defining models sharing upside and downside risk.
  • The ability to manage clinical and financial leakage across the full care continuum by investing in new capabilities, measuring timing, and navigating a risk roadmap to better manage populations. The spectrum of capabilities would include data aggregation and analytics and evolving go-to-market strategies.

The value-based movement is picking up speed.

US and state health care programs are moving increasingly toward value. The federal Department of Health and Human Services has set a goal of tying 90 percent of all Medicare payments to value-based outcomes by the end of 2018. The repeal of the sustainable growth rate should encourage doctors to shift their practices to value-based payment models, such as bundled payments and the spread of ACOs.

More than 500 ACOs have been established and serve an estimated 50 million patients, and recent Medicare formula changes will likely accelerate continued growth.

Innovative collaborative programs, like the Delivery System Reform Incentive Payments systems launched so far in seven states, have the potential to further reshape how care is managed, financed, and delivered, with the goal of improving outcomes at a lesser cost.

The Goldilocks principle shows that the race doesn’t always go to the swiftest. Making sure an organization has a stable, well-balanced growth strategy can be a marketplace winner.

To that audience member in New York, my advice is for industry participants to consider calculated risks, forge strong alliances and partnerships without outsourcing core competencies to immature or less competent organizations, and to invest in opportunities even if they may have initial downside potential.

Some of our clients talk about the exhaustion they’re already feeling in this sometimes arduous, time-consuming and transformative period of change. That’s understandable. Many have done just fine through fee-for-service models over the years, and the government hasn’t always done an effective job of communicating the advantages of value-based programs. Industry players often only see the hurdles.

So providers might be hesitant to take on significant risk. They’re looking for programs and partnerships that will yield shared savings and reward cautious investment. They want the upside without the downside risk, a strategy that may well work in the short term, but not longer-range.

Given the current state of the market, I believe in six strategic imperatives to win the V2V shift:

Proactively define your strategy: Winning the V2V transition will require local-market strategies that enable competitive differentiation. Securing new business relationships across the continuum of care will be necessary – but insufficient – to effectively manage risk and drive incremental market share.

Develop financial flexibility: Fee-for-service will not go away entirely and the economic transition will occur over a multi-year time horizon. As a result, financial flexibility to address changes in reimbursement, the revenue cycle, investment needs, and overall capital position will be critical to winning the V2V shift.

Control your own destiny: Beware the impulse to quickly move to long-term outsourced models. The market is shifting quickly and population health capabilities in particular will become a future core competency. The potential for long-term vendor hostage risk is real.

Maximize existing assets: Most organizations possess assets that can be utilized for V2V strategies today – EMR, HIE, data warehouses, collaboration models, patient engagement tools, and current business relationships. The V2V shift does not require starting with a blank slate.

Fortify the physician-patient relationship: The role of the consumer is growing. However, with the right strategies, this should only strengthen the physician-patient relationship. Maximizing existing physician and clinician workflow models will improve the consumer experience and promote stickiness.

Minimize transition risk: Starting with existing assets and physician engagement models will help to de-risk the V2V transformation. Dedicated resources, leading program leadership and change management capabilities will be necessary to lead the transition.

This process is a marathon, and we’re barely into the race. We’ve only touched the surface of the kinds of disruptive models that will become game-changers in the years ahead. In fact, over the next 18 months, we may be seeing disruptive models that will make people’s heads spin.

For more on making the shift to value-based care, check out “Value-based care: Winning a new game.”

 

Author bio

Brian is a principal in Deloitte Consulting LLP’s Chicago office. He is Deloitte’s Value Based Care Integrated Offering leader. He also leads Deloitte’s Go-To-Market Service Offerings for LHSC. He provides M&A, Corporate Strategy, and Financial Management services to Boards of Directors and management teams. He received an A.B. in Psychology from Wabash College, Summa Cum Laude, and an MBA from the Wharton School at the University of Pennsylvania where he majored in Strategic Management, Finance, and Health Care.