Friday, March 25, 2011

Innovation in Healthcare Delivery

To paraphrase Clayton Christensen (The Innovator's Dilemma) when discussing healthcare, disruptive forces set the stage for meaningful innovation and consumer cost reductions. This is where we now find ourselves. What percentage of our nation's GDP is reasonable to spend on healthcare - 15%, 20%, 25%? What adaptations are necessary to maintain high quality for those who now receive it and simultaneously provide access to primary care and preventive services to the ~50 million in the US who are presently uninsured? Can we achieve this dual goal, is it a reasonable goal, a moral imperative, a fiscally practical and prudent consideration? Whatever your political leanings or interpretation of the individual mandate present in the ACA that just turned one year old this week, these are important questions to ponder.

Clearly, change by definition tends to be disruptive. And such disruption e.g. in how and how much we are compensated for our work, requires a response. If our "cheese" gets moved, we can simply complain and fail by rejecting the notion of changing (recall the starving mouse in "Who Moved My Cheese?"), or we can adapt, that is we can innovate, to succeed within the new system, the new reality. Can we mitigate otherwise adverse consequences of this disruption, maybe even improve upon our present state?

How are physicians adapting or preparing now?
PHOs appear to be making a comeback, perhaps as a first step toward an ACO. More physicians are gaining employment by hospitals and health systems. We're somewhat nervously waiting for the Final Rule proposal from CMS re: ACOs to see what the future might hold for healthcare delivery and payment. Some are preparing for EHR Meaningful Use and the attendant bonus; others appear to be eschewing EHRs, willing to forego the bonus and wager that the penalty in future years will either not apply to them (work for a hospital or retire or ?) or on balance will be worth it to avoid experiencing the costs of purchase, implementation and use of electroninc record-keeping. Others, although in the minority, are actively engaging hospitals/healthcare systems in the formation of ACOs.

I imagine that adjustments by physicians are going to be made on a larger scale only after the disruptions are clearer and any new reality that emerges to replace current systems is known.

Tuesday, February 8, 2011

Practice Prosperity: The Myth of "Zero Sum"

Practice prosperity: How to achieve it through growth and diversification.

Regardless of the method of reimbursement, the importance and relevance of increases in local market demand for health care services, such demand being the major economic factor that creates opportunities for business growth, is often under-appreciated by busy physician practices.

The trigger for adding a physician to a practice is typically either a response to being unable to sustain the current workload with existing personnel or a desire to proactively add partners to establish a more significant competitive presence in anticipation of future needs. It is a well-appreciated truth in business that failure to anticipate or recognize and respond to the opportunities of a growing market will often result in a quantitative service/product gap that reduces the barriers to entry for competition. Either way, the decisions made at this juncture are likely to become self-fulfilling prophecies. If your market grows and you fail to grow with it, someone will step in to fill the gap. Unfortunately, the consequence of added competition is reduced market share, resulting in erosion of business volume over time. And that is something from which it is difficult to recover.

Emotionally charged concerns that adding physicians to a practice's payroll will only increase fixed costs that cannot be hurdled for the economic value added benefit of existing partners are often cited as reasons for decisions to stand pat. Such concerns, even when refuted by facts that clearly establish that such growth has always resulted in increased revenue diversification opportunities and physician compensation, persist in those who find themselves experiencing what I think is fair to characterize as cognitive dissonance, i.e. the experience of seeing the truth but refusing to believe it because it doesn't jibe with existing, contradicting beliefs. One sees the numbers, and even experiences the financial benefits, but this experience can't possibly be a result of a contradicting scenario.

Let's look at a nephrology practice that starts out with revenue coming exclusively from patient fees in the office and hospital, and steadily grows to also include physician services for patients in one or more dialysis facilities. Soon an opportunity arises to assume a Medical Director position, adding to practice revenue. A new partner is added as above, and the process repeats itself. Now an opportunity arises to invest in a de novo joint venture dialysis facility, further expanding the probability of revenue diversification and enhancement. As the practice grows in patient numbers, an opportunity to partner with another group of similar size in a Vascular Access Center further diversifies and expands revenue streams. New partners are added and the process becomes self-reinforcing. Perhaps the 2 groups merge. Now their combined size allows greater administrative efficiencies (lower overhead as a percentage of revenue), the ability to explore other clinical revenue areas such as acute dialysis service contracts, added medical director agreements, clinical research participation, care of patients with kidney transplants, more joint venture dialysis opportunities, etc. Whereas patient volume per FTE physician is not likely to have changed significantly, revenue per FTE from all sources has increased, and practice expense per FTE is likely to have been lowered. This gives the practice greater leverage to invest in more such service lines, sometimes in new, neighboring markets. As long as the practice's (expanding) market demands more than the practice is presently able to supply, the opportunity exists to grow, steadily and prosperously.

In such a scenario, an individual's prosperity is protected and enhanced by the prosperity of the growing collective. "Zero sum" turns out to be a myth.

Saturday, January 1, 2011

Shift Happens. Re-evaluating Strategy: Is what constitutes Competitive Differential Advantage about to change?

OK, if you've read my earlier posts or heard me speak, you know that traditional thought about successfully competing in medical practice has had little to do, typically, with providing higher quality care. That's because it's been difficult in most circumstances to show clinical superiority, and with prices more or less "fixed" by the MFS, service has been the mainstay - the principle differentiator. But all of that may be about to change.

We are entering a new era, a new paradigm in health care, a shift in how care is compensated, and thus how it is delivered. The change has been incremental, first with pay-for-reporting bonuses from Medicare, and now Meaningful Use incentives for(and then penalties for failing to use) EHRs, and very soon, Shared Savings opportunities via Accountable Care Organizations. As Michael Porter recently exhorted in the New England Journal of Medicine (December 9, 2010), the key word in healthcare is rapidly becoming VALUE, defined as outcome divided by cost. Critically important to understand in a world where VALUE (to the consumer - the patient) is demanded, is that the VOLUME of INPUTS per se will no longer be as relevant to calculating physician compensation as it is now. Key of course will be accurate definition and measurement of desired outcomes. Evidence will help drive what those outcomes should be.

The door is not yet closed on traditional fee for service compensation, but it seems clear that this method is unsustainable. Looks like practice strategy will have to adapt to this inevitable shift.