The size of a healthcare organization has a big impact on whether it is adopting value-based payment, bundled payments or provider-sponsored plans.

July 12—Although relatively few healthcare organizations use peer benchmarking to control costs, a significant number are pushing into this area in 2017, according to a new executive survey.

Only 13 percent of the 700 healthcare organizations surveyed in recent months by the advisory health practice at Ernst & Young performed “peer benchmarking and competitive benchmarking.” But 40 percent planned to undertake that type of effort in 2017.

“To get physicians engaged in optimization strategies, they have to be engaged in the corporate agenda to become a more efficient custodian of the healthcare resources,” said Yele Aluko, MD, an executive director at Ernst & Young.

The report blamed fee-for-service (FFS) payment agreements and poor integration across the healthcare industry for raising overall costs by increasing the likelihood of repetitive tests and overtreatment. The focus on initiatives that compare physician results within an organization to spur better performance has previously been concentrated among larger health systems.

“Larger hospitals are probably doing a better job at it simply because of the scale they have and the capabilities, resources, and core competencies that they have developed,” Aluko said in an interview.

The survey of chief medical officers, clinical quality executives, and CFOs at U.S.-based healthcare providers with at least $100 million in annual revenues echoed priorities in other recent surveys. For instance, minimizing unwarranted clinical variation was a top-five 2017 focus of hospital CEOs and a specific priority of 54 percent of respondents in an annual survey by the Advisory Board that was released in April.

A March surveyby Premier found that healthcare leaders planned to focus this year on improving productivity and reducing supply chain inefficiencies and pharmaceutical costs, as well as clinical variation. Specifically, the survey of 63 healthcare C-suite leaders found that 65 percent intended to “increase” or “increase substantially” efforts to control cost-of-care management efforts, while no respondents planned to reduce investments in such efforts.

The growing interest in physician benchmarking, the report on the survey noted, moves beyond traditional cost management approaches—such as disease management programs, authorizations or pre-authorizations, and benefit designs—which 95 percent of respondents are using. Such traditional approaches were seen as no longer sufficient on their own to address quality and value in a meaningful way.

Another newer and expanding cost reduction priority in 2017 was decreasing the use of hospital care and emergency departments by high-cost patients.

Cost-control initiatives that drew less support included medical-error reduction programs, which 58 percent of respondents were currently undertaking and only 18 percent planned to initiate in 2017.

An Incremental Approach

While broad cost control initiatives are common, the survey found that organizations are seeking incremental improvement as opposed to transformative gains.

The practical effect of a lack of strategic approaches can be seen in the approach that many organizations are taking with labor costs, which remain the largest cost for most entities, Aluko noted. A common cost-cutting approach is widespread layoffs.

“While there is a lot to be said for right-sizing a workforce, that is oftentimes a reaction to adverse budgetary results,” Aluko said.

Such short-term responses differ from approaches that involve long-term “cost optimization,” which aims to spread standardized best practices that have been implemented across the enterprise.

“That’s a long-term strategy; that’s a more effective strategy,” Aluko said.

The strategic approach is less common because fewer leaders undertake it with an understanding of emerging industry trends.

“And it is also becoming very clear that in the fee-for-service world, the ability to make large margins with unfettered FFS practice is now diminishing based on the risk models that are now coming out,” Aluko said.

Uneven Shifting

The short-term outlook for the move to value-based payment varied widely in the survey, with 25 percent of respondents saying their organization does not have any value-based payment initiatives planned for 2017. The variation was based on size, with no value-based transition plans being reported by 67 percent of organizations with $100 million to $500 million in revenue. Among organizations with at least $5 billion in revenue, only 8 percent reported no such plans.   

Forty-seven percent of the largest organizations (at least $5 billion in revenue) planned to participate in bundled payments in 2017, compared with only 7 percent of the smallest organizations.

Alternative payment models as a whole attracted the most planned participation (62 percent) from organizations with $2.5 billion to $4.99 billion in revenue.

Organizations most likely to implement provider-sponsored health plans (PSHPs) in 2017 were those with revenue between $1 billion and $2.49 billion, of which 19 percent were working on PSHPs.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Thursday, July 13, 2017