Moving from today’s volume-oriented healthcare system to one that rewards the quality and efficiency of care will require all hands on deck. “If we all share a view of the health care we want—seamless, coordinated, patient-centered, free of waste—and then ask ‘What’s my role in that?’ we can get the job done,”  says Donald M. Berwick, MD, former administrator of the Centers for Medicare & Medicaid Services (CMS). Now president emeritus and senior fellow at the Institute of Healthcare Improvement, Berwick has defined his own role: to create a shared vision of the nation’s healthcare future. That is why he accepted an invitation to deliver a keynote address at ANI: The 2013 HFMA National Institute. In a recent conversation with hfm, he said finance leaders are key to the mission at hand. “They provide the information, and they will figure out the transition models,” he said. “But they will be able to help only if they are part of a larger whole where everyone is headed in the same direction.”  

Q. What is your vision for America’s healthcare system 10 years from now?  

A. We must move from a system of fragments to a system of integrated, coordinated effort. Our biggest enemy is fragmentation, which raises costs, hurts patients, frustrates the workforce, and wastes resources. 

If I had to choose one priority, it would be integrating team-based care across the continuum, especially for chronically ill patients, who need it most. For clinicians and healthcare leaders, this means changes in the way care is configured, investments in communication and IT, training and support for teamwork, new roles for nonphysicians to help knit care together, and much more activated patients and families who are given more resources to help keep themselves healthy and functioning well. 

The primary challenge, from the corporate point of view, is changing the healthcare business model. So many business models today depend on volume and on keeping the machines going—doing more tests, increasing referrals, getting the latest gadget, and keeping beds full.

All of that needs to change. Moving from the concept that the best bed is a full bed to the concept that the best bed is an empty one—that’s a major transition, especially for the hospital industry. We’re only at the threshold of that transition.

Q. What role should healthcare finance leaders play as the industry faces this change?

A. Most CFOs are aware of the need for change, and they may even be a bit excited about helping their organizations make the transition to value. But it’s not going to be easy. 

A couple of months ago, I was at a meeting with senior executives in a large healthcare system that has made tremendous strides in reducing neonatal intensive care unit [NICU] use. They implemented a well-founded approach for preventing elective c-sections before 39 weeks, knowing that when hospitals avoid doing c-sections before 39 weeks, the rate of low-birth weight births falls, and the rate of NICU use falls along with it. This hospital had reduced NICU use substantially— close to 50 percent, I think. Someone reported this dramatic number, resulting just from that one care improvement, and the CFO said, “But I have to pay for the new wing.” It was a joke, but what he meant was: “My goodness, I’m trapped in this old system in which I have to keep beds full to get margin, and I’m going to have to figure out a way to do it differently.”  

When healthcare finance leaders figure out how to get margin without keeping beds full, they will be making a major contribution to progress. 

Q. Do you expect a single business model that supports value-driven healthcare delivery to emerge? Or will this play out differently in different markets?

A. It will vary from one community to another. In some places, there will be a “last man standing” situation, in which systems that can’t make the value transition will wither, while those that can make the transition will become more valuable and, therefore, will survive. And we may see some migration toward specialty hospitals, where people say, “Well, I’m not going to play the whole game. I’m just going to focus in on a single product line. That will become my mainstay and I will be the best supplier in the community for that.”  There will be a lot of variety. 

Of course, some rural communities and small towns have only one hospital, and they won’t have as many options. 

In the worst-case scenario, there will be a continuing struggle to maintain top-line-driven business models in communities that really can’t afford to do so—because someone is going to end up paying. In some sense, the top-line-driven hospitals may win, meaning they will continue to manage by maximizing volume, and they will continue to get the revenue because care is supply-driven. But then schools will suffer, as will bridges and museums and wage-earners and corporate competitiveness. All will pay the price; what health care takes, others lose. 

Q. Many leading health system executives are working to reduce costs below Medicare payment levels. Is that the right goal?

A. That is a good and reasonable benchmark, but I think it’s possible to do even better. Waste in health care is very, very high. In an article I wrote with my colleague Andy Hackbarth from RAND Corporation, we found the median estimate of waste in health care was 34 percent, and that was just in six categories that we looked at: overtreatment, failures to coordinate care, unreliable execution of care, administrative complexity, pricing failures, and fraud and abuse [“Eliminating Waste in U.S. Health Care,” JAMA, April 11, 2012]. Just in those six categories, our median estimate was that about one out of three dollars are wasted, producing no value at all for patients. 

So healthcare leaders who focus on what I would call a portfolio of activities on waste—not just one thing, but many—may well find it possible to reduce costs from their production systems. This depends in part on changing the payment system, because one person’s waste is another person’s income. As we move toward consolidated payment— global payment, bundled payment, partial capitation, full capitation, transition payments—it makes more financial sense for healthcare organizations to reduce unnecessary costs. 

Awareness is growing that the best way to reduce cost without harming people is to improve quality. That growing awareness is producing better alignment between clinical forces and managerial leadership. 

That said, we have a long way to go. We still don’t position care improvement strategies as centrally as we should. Boards, executives, and finance leaders still need to really convince themselves that the best way to contain cost is to improve care. 

Q. Of the many CMS initiatives designed to improve the value of health care, which will be most important to transitioning the industry to deliver more value?

A. The initiatives in the CMS portfolio have three attributes in common. 

First, they encourage continuity and coordination. Accountable care organizations, bundled payments, community-based care transition models, and other initiatives are trying to structure payments in such a way that clinicians are incentivized to cooperate and to anticipate, not just to do more things. 

Second, there is more of a focus on quality. There are actually rewards for organizations that do very well, and there are penalties for organizations with high complication or readmission rates. Although these incentives are still early in their development, and metrics and other details remain to be worked out, they all point toward the same idea: The better you do, the more you should get paid; the worse you do, the less you make. 

The third change supports innovation. The Center for Medicare & Medicaid Innovation, in particular, along with other entities, is saying, “Hey, if you’ve got an idea that might reduce cost and improve outcomes, tell us about it, because we want to support you and we want to learn about that idea and spread it, if it’s a good one.” 

Q. As hospitals, physicians, and other providers consolidate and integrate, concerns are being raised about monopolies and increased prices. How do you see this playing out?  

A. I’m very worried. On the one hand, we can’t have coordinated care without better cooperation, so doctors and hospitals, hospitals and home care, and laboratories and others all need to be talking with each other more and working out pathways and strategies for coordination. That’s just necessary. You can’t do this with smoke signals. You have to talk.

On the other hand, this does open the door for crossing the line and going past collaboration into collusion. The regulatory agencies—the Federal Trade Commission, the Department of Justice, the Office of Inspector General, and the Internal Revenue Service— have all been worried about whether this changing framework of care and fostering of cooperation would lead to collusive, anticompetitive behaviors. 

I must say that, in some markets, this appears to be happening. Any providers that are taking advantage of the situation and seeking to control or raise prices to get what they can in the short run will only hurt the industry and, in the long run, hurt themselves. It may be tempting—I understand that— but it is short-sighted. I hope that hospital leaders will realize that such an approach would come back to haunt them in the end. The patience of the regulatory agencies is not inexhaustible, and if these behaviors scale up, there will be consequences. 

Q. Are we measuring the right things to improve the value of care?

A. We are in measurement adolescence. We need to “have the lights on,” so we need metrics to manage care properly and to ensure that new incentives, like global budgets or bundled payments, are not leading to underuse of services. So that’s key. Also, we still lack the will to be transparent about costs. There is too much resistance to making true costs and prices known. It will help our country a lot if we get into a new era where prices and costs are well known and transparent and we don’t keep them to ourselves. 

Beyond that, though, we are now in an era of too much measurement. Hospitals have to report well over 1,000 measures, and not all of them have real substance. What we need is what I call “measurements with heart”—measurements that reflect what we are really after. 

I hope we will see the number of metrics decrease, but also, an increase in importance of the metrics we decide to keep, so we will actually be turning the lights on in the right places. That’s going to take leadership. It will take new levels of cooperation within the public sector and between the public and the private sectors. I think everyone will breathe a sigh of relief when we end up with fewer, better metrics. 


About Donald M. Berwick, MD

Donald M. Berwick, MD, the former administrator of the Centers for Medicare & Medicaid Services, is president emeritus and senior fellow at the Institute for Healthcare Improvement (IHI), Cambridge, Mass. A leading authority on healthcare quality and improvement, Berwick cofounded the IHI and led that organization for more than two decades. He practiced pediatrics at Boston’s Children’s Hospital Medical Center, Massachusetts General Hospital, and the Brigham and Women’s Hospital for many years. Berwick also served as clinical professor of pediatrics and healthcare policy at Harvard Medical School and as professor of health policy and management at the Harvard School of Public Health.


Hear Don Berwick at ANI: The 2013 HFMA National Institute, June 16-19, Orlando. 

Publication Date: Wednesday, May 01, 2013

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