Innovation and Disruption

The New, No-Norm World of Health Care

March 3, 2017 11:39 am

With the move to value-based care, the growth of hybrid organizations, and other trends in health care, hospitals and health systems are finding that these days, the only constant is change.

Big changes are occurring in health care as a consequence of the move away from fee-for-service and toward value-based care models, merger and acquisition activity among providers and health plans, and advancements in IT. Pilot programs and partnerships such as accountable care organizations (ACOs) are pushing new ideas to the forefront. In sum, healthcare business has become anything but usual.

As the nation’s health system continues to undergo this profound transformation, it can be informative to examine the ways in which industry stakeholders—and hospitals, health systems, and health plans, in particular—have responded with various innovative organizational structures and investments in health IT (HIT). It also can be helpful to assess how far the industry has progressed toward completing the transformation—and how much further it has to go.

Such insights can be gleaned from results of recent surveys conducted by KLAS Research in which providers answered questions addressing a range of issues related to value-based care and the steps required to prepare for it. These survey results provide a snapshot of the state of the industry, the extent to which different organizations are investing or have invested in this effort, and the different forms those investments are taking.

One clear preliminary finding is that there remains a widespread perception that value-based care represents the future of health care—a future that many organizations believe is close at hand. One survey conducted by KLAS Research in May 2016 found that just under half of 173 healthcare provider respondents anticipate that value-based-care revenue will equal or surpass fee-for-service revenue within the next five years, as shown in the exhibit below.

Value-based Care Timing: Provider Expectations Regarding When Population Health Management Will Surpass Fee For Service as the Standard Operational Mode

Here, then, is a look at how healthcare organizations are preparing for that future.

Evolving Organizational Strategies and Structures

From the standpoint of organizational structure, the industry has seen a widespread emergence of “hybrid” organizations designed to fulfill the requirements of value-based care and population health management. The proliferation of these organizations has largely occurred as a result of pilot programs, with ACOs being a prominent example.

Consider that only about five years ago, ACOs were not commonplace. Yet today, it is estimated that there are many, many hundreds of ACOs, and the number is nearing 1,000.a Add the fact that most of those ACOs are individualized based on the local partnerships they form and the varying levels of risk they assume, and you have the remaking of health care right before your eyes—at least in pilot form.

Provider-owned health plans, or what could be aptly referred to as “payviders,” represent another unique, hybrid structure that has experienced growth in health care. Payviders have the ability not only to deliver care but also to provide insurance to support and guide that care. Stemming from managed care arrangements in the 1990s, in one form or another, payviders have been part of the healthcare market for decades and in many instances have represented leading and respected organizations.

Commercial health plans also are developing their own approaches toward population health management and value-based care. Despite widespread perceptions that health plans are simply continuing to pursue their traditional cost-cutting and cost-containment approaches, some are completely reinventing themselves, opening up new collaborations and partnerships with providers, working to change the member experience, and even creating incentives for wellness. And in cases where partnering with a hospital or health system may not move the needle enough, some health plans have begun to acquire medical groups or hospitals.

With all these changes, the new norm is that there is no norm. Health plans own hospitals. Hospitals own health plans. Meanwhile, large hospitals also are becoming investors in the vendor solutions they buy, and large health plans are creating subsidiary arms to commercially offer their own vendor solutions to healthcare providers and even to other health plans.

Any way you look at it, the picture is messy. The important point to keep in mind is that, whatever hybrid structure a healthcare organization may pursue, the structure alone is only a vehicle and should not be mistaken for the ultimate goal of value-based care: to achieve better, more affordable care, with an excellent patient experience to match.


New HIT to Support the New Norm

Vendor IT solutions and services to support this new norm are overwhelming in number and increasing by the day, yet they have produced minimal real, client-reported success. In KLAS research on population health solutions conducted over 2016, including conversations with over 350 respondents from healthcare organizations, more than 20 percent of respondents expressed concern about their current vendor solution and do not plan to keep it long term. Another 10 to 15 percent of respondents report being stuck and/or very unsatisfied.

An anticipated 20 percent replacement rate is dramatic. Consider, too, that most of the newly created and now (early) adopted population health management vendor solutions in the market have been in use for only a few years.

This issue poses a shared challenge for both vendors and customers. Both groups are searching for answers in a market now covered by a thick shell of uncertainty, tightening pressures, and payment changes. Vendors struggle to know and fulfill delivery on their population health management solutions in an environment where the very term population health is still being defined. These market conditions create a seemingly never-ending cycle of questions begetting more questions rather than leading to answers.

Instead of submitting traditional requests for information (RFIs) or requests for proposal (RFPs), which signify interest in or the need for a specific vendor solution, customers in the early population health market have tended to issue requests better characterized as “requests for anything” or “RFAs.”
As healthcare organizations have changed their network strategies, partnership approaches, and actual care models, they have expected to have HIT solutions for population health management that would fit the bill, and often have been disappointed with the solutions offered

But the idea of an RFA market does not provide the full picture for HIT in the transition to value-based care. RFAs represent, in essence, an interest in what could aptly be referred to “transformational technology.” Yet there also has be a focus on implementation of foundational technology”—i.e., developing the core clinical systems, electronic health records (EHRs), and patient accounting/billing systems that are essential for operations within a value-based enterprise.

Contrast the rates of investment in these two types of technologies, and an interesting picture emerges, as shown in the exhibit below. Just under half of the HIT market is still looking only to invest in core, foundational technology platforms, either by selecting a new clinical or financial system or by optimizing or completely replacing what they have in place today. Keep in mind that although transformational technology investments (i.e., population health) seem to get all the buzz today, most healthcare organizations still have a long way to go on HIT.

Types of HIT Purchases Acute Care Providers are Undertaking (n = 325)

For those currently looking at transformational technology investments (or planning to do so in the future), these investments typically include solutions in the areas of population health, business intelligence and analytics, patient engagement, and telehealth, as shown in the exhibit below. There is a common aim for all these areas of technology investment: rethinking care and care delivery to make it patient-centered. And achieving aim also requires reengineering of traditional healthcare approaches.

Transformational HIT: Percentages of Healthcare Organizations Investing in Value-Based Care Solutions ( n = 325)

Reimagining the model and approach for care delivery is on the minds of not just healthcare providers, but also health plans, government organizations, communities, and social organizations. No single stakeholder or organization in this large group of parties can create systemic change, although orchestration among each of the parties can make a difference, at least over time. New roles and titles in health care, such as chief innovation officer and chief transformation officer, highlight the need to envision—and embrace—the new world ahead.


In the words of one health system chief innovation officer, “Going forward, the clinical record will be less important than everything else about a provider knows about a patient.” What that means is, although clinical data on a patient are important, other information about the patient (e.g., the patient’s geographic environment, past behaviors, and other social health determinants) will complete the picture—or perhaps even redraw it, becoming key considerations for clinical caregivers and healthcare stakeholders who are not in clinical care delivery positions. Imagine the day, for example, when physicians can receive essential insight into their patients’ conditions and needs thanks to data from wearable devices.

That day may not be too far away. Digital health and wearables are already all around us. These solutions are built into our phones. They are sold in our athletic wear. They are incorporated into our watches. If we think the internet of things (IoT) is pervasive today, just wait another five years to see how fast this trend continues to develop and expand.


To Change or Not to Change

Whatever the healthcare IoT future looks like, one thing is certain: Little will look the same. Everything from the actual structure of healthcare organizations to care models to the healthcare wearable devices is changing. The question for healthcare leaders is, “How should we respond to change?”

One KLAS survey sought to measure healthcare organizations’ actual responses, by inquiring about the extent organizations are actually deriving revenue today from their value-based care approaches. The results are shown in the exhibit below.

Percentage of Revenue Currently Deriving from Value-based Care Arrangements (n = 142) 

Although interpretations of what specifically constitutes value-based care revenue might vary, it is nonetheless certain that the value-based revenue reported by the survey respondents was not traditional fee-for-service revenue, and results clearly indicate the majority of revenue for healthcare systems is still largely based on fee-for-service models. Although that’s no surprise, the data also paint a picture of some important initial progress—almost four-fifths of the surveyed organizations indicated they were obtaining at least
some revenue from value-based care initiatives, if only 1 to 10 percent.


These findings point to the fundamental challenge that healthcare organizations face as the nation’s healthcare system continues to undergo its value-focused transformation: The challenge is to determine what to do next.

Strategies for Transitioning to Value-Based Care

A key objective of the research described here was to understand the various strategies that healthcare leaders are pursuing to start and/or sustain the transition to value-based care. Although space will not allow a comprehensive look at the full range of strategies identified, the following strategic recommendations represent a distillation of noteworthy approaches.

Assess and initiate participation in one or more value-based care programs. This starting point may be as simple as applying to participate in the Medicare Shared Savings Program (MSSP) and assuming upside financial risk. Another introductory approach might be participation in the Bundled Payments for Care Improvement (BCPI) model.


Forming a clinically integrated network (CIN), whether in conjunction with or separately from MSSP or the BCPI model, also is a well-established strategy for promoting the engagement of physicians and nursing teams in care improvement and emboldening negotiation efforts with health plans. Among the other value-based care programs offered by the Centers for Medicare & Medicaid Services (CMS), the Next Generation ACO model brings together physicians, hospitals, and others to coordinate care for patients.

Not all value-based care programs are specific CMS, however. Healthcare providers and commercial health plans may enter into their own arrangements and contracts with specific clinical and financial goals, such as capitation arrangements, common among managed care organizations and HMOs, where a lump dollar amount is given to a healthcare provider to manage the care and treatment for an entire population, regardless of the current health status of and/or treatment for the individuals in that population.

Implement new physician engagement and compensation structures. Many leaders of hospitals, clinics, and ACOs are seeking to accelerate the transition to value-based care by designing new models that emphasize physician engagement and ownership in the care process, and that seek to improve upon traditional salary-based physician compensation. As highly motivated professionals who generally embody a spirit of goodwill, physicians are perceived to being in the position to have the greatest positive impact on improving quality and the patient experience. The best healthcare organizational planning around new initiatives such as improvement in coding and documentation, standardization in appropriate prescribing, and reduction of unnecessary clinical practice variation cannot succeed without physician alignment and buy-in.

Patient-centered medical homes (PCMHs) are widely regarded as effective means for promoting physician engagement and implementing compensation structures with value-based care payment incentives. Whether approached by following a PCMH framework or other framework, anticipating the need for supportive resources (i.e., nurses, care coordinators) could be considered a best practice.

Evaluate organizational structure changes and growth strategy. Clearly, new organizational structures are required to solve the complex healthcare challenges of today and prepare for the future, and the scope of the structural innovations can range from small to large. For example, strategies can range from smaller-scale initiatives such as creating a new central billing office to improve customer service or putting in place a case management team to attend to high-risk, high-dollar patients and cases to larger-scale undertakings such as acquiring physician practices or merging with another hospital or health system. Indeed, healthcare mergers and acquisitions are dotting the map everywhere, although the full long-term financial effect of this trend is yet to be determined,


Different from a merger or acquisition, a payvider organization constitutes another type of departure from a traditional hospital business requiring different expertise. In the past few years, healthcare organizations have increasingly been adopting this model, particularly those that are already seriously participating in value-based care programs.

Some health systems that do not consider themselves ready to launch a health plan for their members have taken a smaller but still significant step of assuming full risk for their own employees or becoming a self-insured employer. Their purpose is to use the experience as a test-bed to see whether they can internally succeed with their own employee population and then apply their newfound expertise toward offering health plan products to their patient populations.


Develop new, often nontraditional partnerships. New relationships and connections within the healthcare industry, such as partnering with a local homecare agency, social community care center, or pediatric hospital, can help create opportunities and collaboration that otherwise likely wouldn’t happen. Exploring ways to work with community-based employers also could benefit health systems as they seek to align new population health initiatives with the steadily growing role that employers are taking on in encouraging the health and wellness of their employees.

Another nontraditional approach is to work with major transportation providers in the region to open up new communication and discovery channels for patients who consistently must rely on local forms of transportation. And developing strong associations with local schools and educational programs can provide a means for educating new populations at an early age. Even partnerships with local grocery stores or food banks can help connect dots for referring and securing resources needed to help patients with increasing healthcare needs following hospitalizations. Not to be forgotten, and increasingly necessary in today’s digital world, are telemedicine strategies and partnerships meant to help meet consumers’ needs and for convenient access to health care. 

Sustaining Change: One Day, One Step at a Time

The ability to sustain efforts to transform to value-based care, whether initiated by a health system, health plan, government, or other organization, is dependent—at least in part—on knowing the patient. And a big part of getting to know patients often is connecting and communicating with them well before they become patients—in other words, engaging with patients as health plan member or as consumers.

That paradigm shift is becoming real, fast. For example, customer relationship management (CRM), not new by any means, is seeing a material surge in health care as health systems and health plans seek to focus on patient and member engagement. CRM also has an important role to play in healthcare organizations’ marketing initiatives for reaching new patients. Related to CRM are patient and member portals, which tend to be pursued as part of HIT optimization efforts. 

Healthcare providers also are extending efforts to use patient bill estimation solutions for their patients, even as health plans invest in price transparency solutions to enable true comparative healthcare shopping for their members.

An uncertain and undefined new world of health care lies before us. Only one thing is certain: Change is coming. But it is not likely come in big waves. Rather, it will come one quality measure at a time, one clinical chart at a time, one patient visit at a time.

That change also presents an unparalleled opportunity for providers. And if one considers the long-term outlook for value-based care, it is far riskier to wait and see what happens it than it is to act now

Joe Van De Graaff is research director at KLAS Research, Provo, Utah.


a. See, for example, Muhlestein, D., and McClellan, M., “Accountable Care Organizations in 2016: Private and Public-Sector Growth and Dispersion,” Health Affairs Blog, April 21, 2016.


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