Innovation and Disruption

The Five C’s of Innovation

May 30, 2018 11:41 am

A recent research project on factors affecting total cost of care also provides insights on the market conditions that might best support innovation.

HFMA just finished a multiyear research project on factors influencing total cost of care in markets across the United States. Our interviews with stakeholders in the nine markets that were part of the qualitative study were wide-ranging and included discussion of the pace of change in adopting new payment and care delivery models. Based on these interviews, HFMA found that innovation could grow from any number of combinations of the five “Cs”: competition, collaboration, culture, catalysts, and constraints.


One of the more surprising conclusions of our study was that how much competition was less important than what kind of competition. The lower-cost markets in the study typically had competition among two to four health systems with well-organized provider networks that competed across the geography of their markets.

Some level of competition was important, however, in driving innovation in both health systems and health plans. For health systems, the element of competition across a geographic area was important, so that throughout the market, at least two systems were viable options for consumers. Health plan competition seemed particularly important in driving innovation: One health plan interview suggested that a vigorous, innovative health plan market would have at least three health plans active across all market segments.


Horizontal competition is important, but so is vertical collaboration. In other words, a health plan competing against another health plan can spark innovation, as can competition of one health system against another. But innovation also depends on collaborations that run vertically among health plans, health systems, and physician practices. Innovations in payment and care delivery require a level of trust and a willingness to share information so all parties involved in a new model—health plan, health system, and physician practice alike—can succeed.

Again, it was notable that lower-cost markets had health systems with established well-organized networks of providers. Present in many of these markets were integrated delivery systems that brought health plan expertise to the mix. The presence of one particular delivery system model seemed less important, however, than the presence of stakeholders that had learned the value of working together.


Culture could be a significant factor in driving innovation at both the organizational and market level. At the organizational level, a culture of leadership that says “we can do better” is sometimes all that is required to spur innovation. In one market, a multispecialty physician practice decided that it wanted to be the market leader in piloting value-based payment models. It found a willing partner in one of the market’s health plans and was on its way. In another market, a physician leader saw a need for better care for frail seniors and disabled individuals living in assisted living, memory care, or group home facilities. He built a practice focused on the care of these individuals and now contracts with all payers in the state in per-member per-month shared savings models, serving more than 10,000 patients with special needs.

At the market level, several factors contribute to a culture focused on quality and cost-efficiency. Many of these markets were heavily invested in managed care models in the 1980s and 1990s and have retained some of the lessons learned in redesigning care delivery. Also present in many lower-cost markets were organizations dedicated to the public reporting of information on quality and efficiency. In some markets, such as Minneapolis/St. Paul, health plans and the state medical society had come together to form a not-for-profit organization dedicated to public reporting. In other markets, employer coalitions had formed to share information on quality and cost. The link between public reporting and innovation is clear. In the word of one interviewee, “Providers pay attention to publicly reported data—they care about how they look.”


Although innovation can be organic, as in the case of organizational leaders who drive a culture of change from within, it also can develop in response to an external push. One of the most significant questions encountered in the research was the question of who or what would be the catalyst that would drive further innovation in value-based payment and care delivery.

We heard some answers. In one market in a more rural state, the state government had used its power as the state’s largest employer to implement a new reference-based pricing for all hospital inpatient prices statewide. Some markets were among the mandatory participants in the Center for Medicare & Medicaid Innovation’s Comprehensive Care for Joint Replacement (CJR) model. Although there were some concerns about the mandatory nature of the model and its placement of risk with hospitals alone, there also was an acknowledgment that the model had served as an impetus for conversations among providers across the episode of care to identify areas for potential cost reductions. In general, several interviewees identified a continued push by the Centers for Medicare & Medicaid Services on value-based payment and care delivery models as critical for innovation and change.


Consistent with the old saying, “necessity is the mother of invention,” the study found that constraints could also be a source of innovation. This was especially true for Medicaid managed care programs and organizations that served the needs of the underprivileged within tight fiscal constraints. The leader of a federally qualified health center (FQHC) said, “When everyone is pulling bodies out of the river, our goal is to find out where they are coming from.” The FQHC had leveraged its skills by entering a shared savings agreement with a health system that needed help in managing the care of patients with medically complex conditions and difficult socioeconomic needs. The savings it helped the health system secure by addressing the social determinants of health for these patients were used to buy back care for other FQHC patients at Medicaid rates.

Although the pace of change varies dramatically in markets across the nation, the good news is that many markets feature at least one of the five Cs of innovation. Although a combination of these factors can be especially powerful, we also learned that sometimes one is all it takes.


googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text1' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text2' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text3' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text4' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text5' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text6' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text7' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-leaderboard' ); } );