Chuck Lauer: What's Really Happening to Healthcare?

Healthcare is currently going through a phase of incredible change, but also a phase of incredible uncertainly. Although no one knows for sure how all of this change will net out, I thought I'd take the opportunity to share with you my thoughts about what is really happening to this industry and where we need to go. There is some good news and some bad news. I think the good news is ultimately going to outweigh the bad, and I think this is a great time to be healthcare!

First, however, a caveat: As a wise friend of mine said recently, anyone who thinks they know for sure where all of this is headed is either a fool or a liar. There are just too many variables, too many forces at play to know for sure where we will end up.

As you might be aware, one of those variables is a little thing we call an election coming up in a matter of weeks, with huge implications for health reform and delivery system change. And it isn't just the White House up for grabs. Both houses of Congress are very much open for either party to win.

We also have the budget deal from 2011, which would lead to across-the-board cuts to Medicare in 2013 unless Congress acts. Whatever happens in November, Washington has no choice but to act to stop the health cost spiral.

As you all know, for 32 of the past 40 years, healthcare costs have grown faster than the rest of the U.S. economy. Federal healthcare costs are expected to reach $950 billion this year — the largest contributor to our staggering national debt. The amount of waste in the system — estimated at roughly a third of all spending — has got to be reduced tremendously if we are going to survive as a nation.

You probably saw the latest CMS cost projections. We have had a reprieve over the past couple of years, but healthcare costs are still growing faster than GDP. In 2014, health spending is expected to begin accelerating again, in part because of coverage expansions under reform but also because of those darn baby boomers! Here are three statistics on healthcare spending that may or may not surprise you.

  • By 2021, 20 percent of our GDP is going to be gobbled up by healthcare.
  • By 2021, total spending is going to rise from $2.8 trillion today to $4.8 trillion.
  • By 2021, federal, state and local government healthcare spending is projected to account for nearly 50 percent of national health spending.

This is just unsustainable!

Payment reforms
Health reform has some elements that are going to help. There are some really significant payment reforms:

  • The hospital value-based purchasing program calls for 2 percent of payment at risk by 2017.
  • The effort to reduce hospital readmissions, which gets started next month, rises to a 3 percent possible penalty by 2015.
  • The healthcare-acquired-condition penalty is still there, another 1 percent at risk.
  • Then there is meaningful use of IT, part of the Stimulus Act, which for now still has payment incentives, but providers that don't meet the rules will see penalties kick in by 2015 at 1 percent of total payment and rise to as high as 5 percent.

Reform also brings us new forms of provider organizations, including ACOs, bundled payments and medical homes.

Let's just look at one of these reforms: ACOs.

In the first seven months of this year, 154 ACOs won Medicare contracts to serve 2.4 million beneficiaries over the next three years, which is more than CMS' projection of 2 million. They hope to share in savings while delivering things like preventive care and chronic care management.

In the commercial market, studies show there are perhaps several hundred ACOs led by private insurers.

This work may already be having an impact.

Hill Physicians Medical Group, a 3,700-physician practice in the Bay Area, and Dignity Health, which used to be called Catholic Healthcare West, partnered with Blue Shield of California and CALPERS in an ACO. The partners identified IT integration, drug cost reduction, reducing practice variation, care coordination and chronic care management as keys to reducing costs and improving quality. In the first year, the partnership saved $20 million and reduced readmissions by 22 percent.

On the other side of the country, Blue Cross Blue Shield of Massachusetts saved $107 per patient and improved quality of care for chronically ill adults in the second year of an ACO-like arrangement called the Alternative Quality Contract.

It is far too early to make any conclusions about the performance of Medicare ACOs. I would not take away too much from the results of the earlier group practice demonstration, as the newer program is quite different in design.

One thing we know is that whoever is in power in Washington is going to wind up making ACOs less voluntary. We may have some course corrections, but they are here to stay.

One side effect of payment reform is consolidation. We are seeing the rise of the integrated delivery network — or what some are now calling Big Med — everywhere. Insurers are buying physician practices. Hospitals are re-starting insurance plans.

The competition for physicians is fierce. Many physicians are giving up on small practices, either joining with large, multispecialty practices that have strong hospital affiliations or simply selling practices.

There seems to be some pushback from antitrust investigators. It will bear close watching, but I have to believe that like most such probes, all it will amount to will be a full employment act for lawyers. It is clear from the health reform law that IDNs and integration are a key part of Congressional intent.

Confronting confusion through leadership

There's a lot of action, but I am not sure it is all making sense. I still see a lot of confusion out there.

Earlier this month I was the moderator of two panels at the IDN Summit in Phoenix. On the second panel I had two chief medical officers and two chief nursing officers. The physicians were quite outspoken, and the nurses were too. Every time I talk to frontline people about the Accountable Care Act, most of them accept the changes that are being brought about by the new regulations but are uncertain about the total picture. The two physician on my panel spoke openly about the absolute need for leadership, but apparently they are not getting it from the CEO.

I talk to a lot of CEOs. I can report to you that some of the most highly experienced, talented and forward-looking leaders I know are unsure of how to respond to all of the changes taking place. As a result, morale in many places is low.

People need to be inspired and told that what is happening now is only part of an evolutionary process that started before reform. Transparency and consumerism were already under way by 2010. People are paying much more out of pocket for their care and demanding quality service and care in return. They also want to be able to use the Internet to find out more about the physician and hospital they are going to visit.

There were also new forms of competition before reform. Who would have thought that you could get your flu shot or have a minor injury treated at the drug store? Who would have thought complex surgeries would take place at a medical office building?

You may have seen this, but there is a group of top health systems leaders who have come together as the Institute of Medicine's Roundtable on Value & Science-Driven Health Care.

Earlier this summer they put out their first work product, the Checklist for High-Value Healthcare. There are a lot of great things in this plan, including more integrated care, use of evidence-based medicine and so on. But you want to know what these visionary leaders identified as the number one priority?

Let me quote: "Visible and determined leadership by the CEO and the board, to create a culture of continuous improvement."

Leaders must inspire and mentor their employees. Many young docs and nurses I talk to are far more idealistic than their predecessors. They see this as the time to be in healthcare because of all the challenges and innovations that are taking place. It is their time. What they do now will shape the future of healthcare, but they need a vision to follow!

Yes, the challenges we face today are enormously complex. But everyone — including CEOs — needs to believe that this is an industry with a future. People are still going to need healthcare. In fact, with the baby boomers coming, they will need it more than ever. Medicare is not going to disappear. There are opportunities out there to not only survive but thrive under health system change.

It is a time of collaboration, of setting aside preconceived notions and old grudges and getting to the heart of it: providing healthcare that is truly patient-centered, of the highest quality, and yes, of great cost-efficiency. I think that health leaders have to find the same inspiration as young nurses and physician. They have to reconnect with some ideas they may have discarded a long time ago as too idealistic, such as treating patients as human beings rather than a source of revenue.

The fact is that when you are ill, you want to be treated with dignity and respect. Too many times, patients are treated like an afterthought and not the main purpose of the institution. All patients should be accorded first-rate service no matter what their station in life. They are human beings who go to a hospital or medical office for comfort, relief and healing.

I want to leave you with is a sense that for those who want to stay the course, who view this as the most honorable profession, who are dedicated to healthcare as a calling, who are willing to embrace both change and risk, this is a thrilling time to be a part of the greatest industry on earth!

The challenging part is that this is hard work; it's about building improvements that are sustainable and reflect a vision of the future. In the end, I have a lot of confidence in the ingenuity, leadership and determination of healthcare providers — as well as the companies that serve them — to get us where we need to go.

Chuck Lauer ( ) was publisher of
Modern Healthcare for 33 years. He is now an author, public speaker and career coach who is in demand for his motivational messages to top companies nationwide.

More Articles By Chuck Lauer:

Chuck Lauer: An IT Boondoggle?
Chuck Lauer: Greater Awareness of HAIs Has Not Translated Into Action
Chuck Lauer: 10 Observations on the Affordable Care Act and Our Future

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