The phrase “Volume to Value” has become so overused that it’s devoid of meaning. What hospitals mean when describing “Volume to Value” are changes that need to be made to the mix of product and service offerings in order to answer patients' demands and increase profitability, strategies any smart business should adopt. After all, if a product is properly priced and perceived as providing value to customers, there should be a rise in demand and volume. Dr. Mark I. Froimson, a surgeon executive and thought leader on value-based healthcare, will provide guidance on what’s driving hospital decisions for products and services and the impact on device company price and value.
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Surgeon Executive Keynote: Volume and Value - OMTEC 2018
1.
2. Riverside Health
Advisors
Value in Healthcare
Mark I. Froimson, MD, MBA
Principal, Riverside Health Advisors
Immediate Past President, AAHKS
Former, Chief Clinical Officer, Trinity Health
Former, President, Euclid Hospital, a Cleveland Clinic hospital
4. Riverside Health
Advisors
• Thank You
• The Challenge
• The Talk of Value
• C Suite Priorities
• Better Conversations
• Thank You
Agenda
5. Riverside Health
Advisors
• What we do matters
• We improve lives
• We relieve pain
• We restore motion
• We restore function
• We return people to work and play
• We allow people to enjoy their families
and milestone events
Thank You for All You Do for Our Patients
6. Riverside Health
Advisors
• We are part of a great system of care that makes all this possible
• We each play a role and have a duty to preserve and improve it
• We work very hard to serve our patients needs
• We constantly strive for better methods
• We listen to our patients and try to give them what they want
• We innovate, bringing new solutions to bear
• We give our all, after hours, during the day
• We never put our interests ahead of those of our patients
Healthcare Ecosystem:
Orthopedics in Particular
7. Riverside Health
Advisors
• We provide a safety net for societal problems
• We leave no patient behind
• We have made tremendous advances
• We can do more now that ever before
• We can solve more problems with less effort
• We know more about the underlying science/genetics of problems
• We have more data about what works
• We can personalize medicine for our patients
Healthcare is an Amazing Field
8. Riverside Health
Advisors
• Thank You
• The Challenge
• The Talk of Value
• C Suite Priorities
• Better Conversations
• Thank You
Agenda
9. Riverside Health
Advisors
• Total joint arthroplasty (TJA) is one of the fastest growing
elective operations in the United States.
• Over 1.3 million total hip arthroplasty (THA) and total knee
arthroplasty (TKA) procedures are performed in the
United States each year.
• Top expenditure for CMS, over $7B in 2015
• $25,000 per episode
• 500,000 episodes
• $15-$20 billion dollars are spent on arthroplasty
procedures in the United States every year
Arthroplasty (Orthopaedic ) Demand Continues to Increase
Because it Works–Our Success Attracts Attention
11. Riverside Health
Advisors
U.S. Healthcare is Expensive, Requires Deficit Spending
and is Not Delivering ‘Optimum Value’ per Dollar Spent
10
PerCapita
Spending
AverageLife
Expectancy
Unite
d
State
s
Medicare and Medicaid spend > $1.1 Trillion
13. Riverside Health
Advisors
Variability in Quantity of TKA by Region
5 – 15 per 1000 people (3x)
“Quality in healthcare means doing the
right things right.”
“Although performance quality is
important, so too is the quality of
clinical decision-making: doing
the right thing.”
“Variation is an important indicator
of problems in the quality of
decision-making.”
http://www.dartmouthatlas.org/data/topic/topic.aspx?cat=22
14. Riverside Health
Advisors
Implicit Conclusion
There isn’t that much physiologic variability
Disease incidence isn’t that varied
So some conclude that some Arthroplasties
being performed must be discretionary
15. Riverside Health
Advisors
Variability in Cost to Deliver
• 29 high-volume U.S. hospitals primary TKA w/o CC
• Methods: TDABC calculated using internal costs/claims
• Results: cost of TKA varied by a factor of about 2 to 1
• Conclusions: The large variation in costs
• Some of the spend in each case must be
discretionary—not adding value!
16. Riverside Health
Advisors
The Economic Criticisms of Arthroplasty:
The Opportunity for Providers/Payers
Problems
• We are spending “too much” on Arthroplasty as a society
• There is too much variability in spending on Arthroplasty
• The variability in incidence cannot be explained by disease incidence
• Each episode, on average, costs too much
Solutions
• Do fewer Arthroplasties—shared decision making
• Reduce the variability in cost—narrow the distribution
• Reduce the mean episode cost
17. Riverside Health
Advisors
Porter and Teisberg—2006
‘Value Based’ Healthcare
The U.S. healthcare system
is in crisis.
At stake are the quality of care
for millions of Americans and
the financial well-being of
individuals and employers
squeezed by skyrocketing
premiums.
—Not to mention the stability of
state and federal government
budgets.
21. Riverside Health
Advisors
Our Relationship with Money
• Healthcare is a business
• Each entity–health system, physician, payer,
industry, employee–has an economic incentive
• But, we think it makes us somehow impure to talk
about the financial impacts of what we do
• We deride ‘bean counters’
• We see ourselves as altruists–so we
talk about “value”
• Value in healthcare should be measured by
what we as individuals and a society are willing
to pay for, and how much is borne by each,
by me, and by society.
22. Riverside Health
Advisors
June 20, 2018 l 21
Patient
Purchaser
Health
System
Surgeon
Industry
Regulator
Payer
Healthcare Ecosystem
Changing Relationships
Cost for one = profit for
another and one
person’s waste is
another’s business
Who provides Value?
Value to Whom?
What is the Patient Willing to Pay for?
$3 Trillion
Opportunity/Risk
32. Riverside Health
Advisors
What is Value?
What is the Role of Price?
• What are we willing to pay – Price
• The amount of value I assign to a good or service is
represented by the price I am willing to pay
• Price as defined by
• Money I will part with
• Time I will spend choosing or obtaining the item
• Political or emotional strain of the choice I make
• Opportunity cost of what I am not doing or buying
• Future spend that will be required to maintain this choice
33. Riverside Health
Advisors
Moral Hazard of Health Insurance:
We don’t pay directly for healthcare
• If someone else is paying for it, I want as much as I can get
• I am not price sensitive when
• I am not paying for it, or
• I think I already paid for it
• Current insurance is a combination of 2 distinct things
• Insurance for the unexpected—emergencies, surgery
• Prepaid health care for anticipated expenses—primary care, screening
• When I can’t separate these out, I have a risk of feeling entitled and
dissatisfied with my deal—co-pays, deductibles
34. Riverside Health
Advisors
What Type of Good or Service
is Joint Replacement?
Necessity?
Discretionary?
Commodity?
Differentiated?
Public good?
Private good?
Free market?
Regulated market?
35. Riverside Health
Advisors
Is Healthcare (Joint Replacement) a Right?
• Should everyone have equal access?
• Who decides how we allocate resources?
• Can you refuse to do a procedure on a noncompliant patient?
• How do we think about the emergence of ‘hard stops’
• BMI > 40
• Smokers
• Substance Use Disorder
• We don’t really know how to set up a market for orthopedic
services if we don’t agree on these issues
36. Riverside Health
Advisors
Current Delivery Cycle with FFS Payments
Flowing To and From Various Participants
Leads to Current State
35
Proprietary & Confidential
Community-Based Care
Acute Care
Post-Acute Care
06/20/18
Payers $$
pharma
Purchasers $$
37. Riverside Health
Advisors
Distribution of Payments from CMS for a TJR
Does not seem Right, and Gets Surgeons’ Attention
SNF $6000
Surgeon $1200
Hospitalist $400
Implant $4800
38. Riverside Health
Advisors
As payment per case drops, surgeons protect their salary by increasing the
number of cases they do per day
$2000 per case of a $25,000 total spend
If I do 300 cases, my surgical billing is $600K and the total spend $7.5M
$1000 per case of a $24,000 total spend
If I increase to 500 cases, my billing drops to $500K, but
total spend now hits $12M
Paying surgeons less increases total spend (if some care is discretionary)
Paying Surgeons Less Has Cost More
Joseph Bernstein, MD, MS; Peter Derman, MD, MBA
Orthopedics. 2012;35(12)
39. Riverside Health
Advisors
Increase productivity and volume—do more cases
Surgeons seek employment or alignment status
Guaranteed salary
De-risk from the market
Co-management arrangements, directorships
Surgeons seek supplementary payment
10-50% of income is derived from sources other than FFS
Ancillaries, ASC, Royalties, Consulting
Alternate Payment Models Provide some hope
Reconciliation bonus if own the bundle
50% bonus
Consequence of Declining Relative Payment
40. Riverside Health
Advisors
• Physicians are incentivized to do unnecessary things
• Procedures are more highly valued than cognitive services
• We do more to patients than they need
• Patients aren’t good at knowing what recommendations to follow
• How many transactions in your life are fee for service,
despite an asymmetry of information?
Vilification of Fee For Service
41. Riverside Health
Advisors
It may not be FFS that is Wrong, but Rather
the Deconstruction of a Composite Product
40
Proprietary & Confidential
Community-Based Care
Acute Care
Post-Acute Care
06/20/18
Payers $$
pharma
Employer/Purchasers $$ DRG
Part D
Part B
Part A
Part A
42. Riverside Health
Advisors
2010 PPACA
Center for Medicare and Medicaid Innovation
CMS Introduction of Alternative Payments
to explore new payment models for integrating care
ACO
Bundled Payments for Care Improvement
43. Riverside Health
Advisors
Premise:
When change in health status demands intervention,
managing the entire episode is preferable to
fragmented care delivery
Tactic:
Redesign the approach to perioperative care–care
coordination and patient and provider engagement–
yields better care at lower cost
Strategic Imperative:
Providers who master this approach create value and
will have a competitive advantage in the
marketplace
Healthcare Reform: Approaches to Care
Two Paradigms in Healthcare Reform
Heal…
Heal…
Epis…
Epis…
Heal…
Heal…
Epis…
Heal…
Heal…
HealthStatus
Baseline=
40%
Episode=
60%
Managing baseline health
needs (population health):
preventive care, chronic care,
health maintenance
Managing episodes
of care: hospitalizations,
surgical interventions (joint
replacement)
1 2
Medical Home/ACO Episode Management/Bundles
42
REDUCE #
REDUCE $ Per
46. Riverside Health
Advisors
H
Aug Sep Oct Nov Dec
O HOO O
Jan Feb Mar Apr May Jun Jul
O
TJR Readmit?
Pre-
AdmitOrthoPrim
Care
Prim
Care
Rehab/
Snf/hc
7 days pre 30-90 days post
$
$$$ one price for episode
$$
Care coordinator
June 20, 2018 l 45
• Composite product, includes all care over a period of time–“episode”
• Triggered by a hospitalization/surgical event
• Cost reflects the resource utilization that occurs from all sources
Bundled Payments for Individual Services of Episode
47. Riverside Health
Advisors
Patients Expect us to Deliver Care as a
Complete Episode, Inclusive of all of the
Interventions that are Needed
Provider Centered:
Bundled Payment
Patient Centered:
Complete Care
Reputation
Access/Appt
Education
Evaluation
Appropriateness
Clinical Optimization
Risk Mitigation
Shared Decision
Efficient Processes
Operative
Excellence
Clinical Pathways
Outcomes
Rehabilitation
Recovery
48. Riverside Health
Advisors
Complete Care TJA: Using Evidence to Reduce
Resource Consumption in Care Delivery
Patient selection perioperative surgical home
Standardize preoperative optimization
Standardize OR teams and process flow
Better blood management/TXA, pre-op screen
Increase multimodal pain management and local
infiltration, No IV PCA
Evaluate routine X-ray use in PACU
No more daily lab draws
No Ice Man or bipolar sealer
No bulky dressing, no staples
No routine Foley catheter
Rapid recovery mobilization: standard DC criteria
Post acute rationalization
Home health utilization criteria
49. Riverside Health
Advisors
Eliminating Avoidable Spend Enables Success in
Episode Based Payment Models
Unnecessary Labs and Imaging
Unnecessary Consults
Overly Expensive Implants/Drugs
Complications/Readmissions
Excess LOS/OR Time
Excessive Spend on Rehabilitation
50. Riverside Health
Advisors
Managing the Episode:
Four Pillars
• Patient selection and engagement
• Physician leadership and team based care
• Care optimization through pathway and
protocol development and adherence
• Clinical intelligence:
• Data analytics, predictive modeling
and decision support
51. Riverside Health
Advisors
Cost Reduction in TJR DRG 470
ACE and BPCI Programs
BPCI
• reduced per
episode spending
• maintaining quality and
improving satisfaction
$864 reconciliation per episode savings
Surgeon led bundles did better
ACE
26,785
BPCI
21,208
52. Riverside Health
Advisors
Cost
(revenue)
Time
51
The Business Case:
Value created by better episode management/care
redesign should accrue to those who generate it
Traditional fragmented delivery
Value creation
New Model of Care
Portion of savings to payer
Available
margin for
provider
53. Riverside Health
Advisors
Value can be “created or shifted” by owning the bundle
—decrease spending downstream
Hospital Centric
52
Proprietary & Confidential
Community-Based Care
Acute Care
Post-Acute Care
06/20/18
Payers $$
pharma
Hospital centric
Purchasers $$
54. Riverside Health
Advisors
Value can be “created or shifted” by owning the bundle
—decrease spending downstream
Physician Centric
53
Proprietary & Confidential
Community-Based Care
Acute Care
Post-Acute Care
06/20/18
Payers $$
pharma
Purchasers $$
Physician centric
55. Riverside Health
Advisors
• Some selected patients are avoided
• High medical or surgical risk
• Poor support system
• There was considerable unnecessary spend in the system
• DRG system consequence
• Post acute spend, physical therapy
• More efficient processes can be identified to streamline care
• Physicians are best at allocating resources during the episode
• Managing performance risk
• True value of innovation/advanced technology can be assessed
• Assumptions we had about what care is needed have
been called into question – the door is open
Episode Based Payment Design:
Some early lessons learned
56. Riverside Health
Advisors
• Thank You
• The Challenge
• The Talk of Value
• C Suite Priorities
• Better Conversations
• Thank You
Agenda
57. Riverside Health
Advisors
What’s Driving Hospital and Health
System Decisions?
• Being relevant to
• Payers
• Physicians
• Patients
• Financial sustainability—Most care is FFS
• Margin—revenue minus expenses
• Balance sheet
• Bond rating
58. Riverside Health
Advisors
What’s Driving Hospital and Health System Decisions?
• Increasing Market Share
• Reputation and Product Mix
• Quality and Safety
• Compete for Patients and Physicians
• Increasing Revenue
• Contracts and Product Mix
• Reducing Cost of Goods Sold
• Workforce Issues
• Sustainability
• Turnover
• Shift to Value Based Care
59. Riverside Health
Advisors
Value Based Care:
Success of bundles has gotten the attention of C-suite
• An Imminent Shift: Almost three-quarters (73%) of C-suite executives
surveyed completely or somewhat agreed that providers must
immediately begin shifting their focus from volume to value.
• Disruptive Potential of Value-Based Purchasing: Nearly four in ten
respondents (38%) completely or somewhat agreed that VBP is likely
to become a truly disruptive innovation.
• Crucial to Win Hearts and Minds: Fully engaging their doctors was
seen by surveyed C-suite executives as the top barrier to VBP
participation, selected by half of respondents.
60. Riverside Health
Advisors
• Alternate Payment
• ACOs and bundled payments create value to be harvested
• Shift in Site of Service
• Outpatient—lower cost in bundled environment
• Digital connectivity—manage patients more effectively
• Smart Tools to reduce outliers and increase efficiency
• Robots, AI and other differentiators—attract physicians
• Workforce
• Physicians and clinicians—better use of clinical teams
Current Trends and Interests
Deriving from this Recent Experience
61. Riverside Health
Advisors
• Complete portfolio of services
• Geographic coverage for payers
• Consolidation of providers
• Physician employment and alignment
• Capital projects
• Access Points – Urgent Care, ASCs
• Integration of product lines – post acute, home care
• Contracting with payers
• Narrow networks
Keys to Market Share
62. Riverside Health
Advisors
• Complete portfolio of services, acute, post acute, home
• Site of service optimization HOPD > ASC
• Product mix—high profit service lines
• Cardiac, Oncology, Orthopedic, Neuro
• Payer Mix—contracting with private payers
• Narrow networks
• High prices without transparency
• Discount off Charge Master
• Recruiting high profile physicians
Margin: Increased Revenue
63. Riverside Health
Advisors
• Pharmacy
• Formulary restrictions
• Generic therapeutic substitution
• Supply Chain
• Limit vendors–price concessions for volume
• Limit new technology
• Operational Efficiency
• Throughput of patients per unit of time
• Eliminate waste, resource consumption
Margin: Cost Reduction
64. Riverside Health
Advisors
• Physician burnout
• Toll of change and multiple false starts
• EMR and other non-value-add technologies
• Nursing turnover and retention
• Engagement of employees as problem solvers
• Lean and 6 sigma philosophies
• Downstreaming work
• Elevate work to limit of license
• Offload tasks to level of skill needed
Workforce Sustainability
65. Riverside Health
Advisors
• Thank You
• The Challenge
• The Talk of Value
• C Suite Priorities
• Better Conversations
• Thank You
Agenda
66. Riverside Health
Advisors
June 20, 2018 l 65
Patient
Purchaser
Health
System
Surgeon
Industry
Regulator
Payer
Value in Healthcare: Healthcare Ecosystem
Changing Relationships
Cost for one = profit for
another and one
person’s waste is
another’s business
Who provides Value?
Value to Whom?
What is the Patient Willing to Pay for?
$3 Trillion
Opportunity/Risk
67. Riverside Health
Advisors
Results of Value Creation
• As a provider of a good or service
• I expect to be rewarded for creating value
• Increased market share
• Happy customers, referring others
• Premium pricing if customer rewards my value proposition
• Value creation is not the opposite of volume, but rather
increased market share (volume) is the natural consequence.
68. Riverside Health
Advisors
Innovation as the Path to Value Creation
• Innovation is the engine of our economy
• Process improvement and technology enhancements add value
• Better solutions to existing problems
• Redefining a problem so that it is amenable
to a simplified solution
• Providing new methods that are lower cost
• Cost as defined by money or disutility or both
• Reducing friction in a system, improving flow
• Applying existing technology in new ways
• Introducing new technology
69. Riverside Health
Advisors
Health System/Vendor Relations
• Moving toward a “partnership” based on shared risk
• Want to get away from a RFP based on price
• Want to be viewed as more than a commodity
• We can move the needle on:
• Quality
• Efficiency
• Value
70. Riverside Health
Advisors
Impact of New Technology
• Key Questions
• What problem (facing the buyer)
are we trying to solve?
• How is this new technology or solution
better than what exists?
• Is it incremental or a true leap ahead?
• Who (which people) will benefit
from the solution? Be specific
• Who is willing to pay for it and
specifically, out of whose budget?
• Operational
• Capital
• Matched up against the
C-suite problem list:
• Market share
• Margin improvement
• Revenue enhancement
• Cost reduction
• Enhanced throughput
• Workforce sustainability
• Physician alignment
71. Riverside Health
Advisors
Introducing Innovation: 5 Ts
• Talented leaders
• Teamwork and understanding team dynamics
• Training, teaching and ingraining a new method
• Technique and the understanding of workflows
and how to apply the new solution
• Technology and the secondary impacts of new methods
• Obstacles to adoption
• Unforeseen events
72. Riverside Health
Advisors
Talent, Teams and Technology
Surgeon’s Concerns
• Who will use this technology?
• Does it improve quality, efficiency, experience?
• Is it an evolution or paradigm shifting ?
• How do I adopt it?
• What do I need to do to prepare my team and myself?
• How will my work change?
• How does this impact my workflows?
• Am I now accountable for a new
set of data or new standard?
73. Riverside Health
Advisors
Training, Technique and Adoption:
Level of Investment
• Pilot program vs. scaled solution
• Where and how do I set up a pilot?
• How long does it take to assess value and
will this technology have evolved?
• How is it best introduced?
• Who should be trained and where?
• How much iteration and customization do we allow?
• Should it be standardized?
74. Riverside Health
Advisors
Technology:
Level of Investment
• Point solution vs. comprehensive offering
• Best in class offering—small, focused, nimble
• Integrated solution—interoperable, fewer interfaces
• Where is this product in its development cycle?
• Prototype vs. commercialized
• How are new upgrades introduced?
• Existing system augment vs. new offering vs. tech giant
• Epic, Cerner, Allscripts, Athena…Stryker, ZB, JJ, SN...
• Tech start up
• Apple, Fitbit, Samsung, Siemens, GE...
75. Riverside Health
Advisors
Technology Revolution:
Business Concerns
• Whose budget does this come out of?
• When do you pull the trigger and dive in?
• Speed of change, risk of delay, maturity of technology
• Is it solving one of my top concerns?
• How do we mesh this from an IT perspective?
• Cyber concerns, interoperability, BAA
• Financing—what is the business model that makes sense?
• SaaS? Lease? Purchase?
76. Riverside Health
Advisors
Future Directions
• Payment models and their impact on health systems will continue
to define opportunities to differentiate our offerings based on the
attributes and the price of our products
• As payment models evolve, we need to stay aligned and
ensure that we are responding and being rewarded for
• improving outcomes
• Improving efficiency
• Improving work for our teams
• Our value only comes from our ability to solve the problems that
our customers (providers and their patients) are facing
77. Riverside Health
Advisors
• What we do matters
• We improve lives
• We relieve pain
• We restore motion and function
• We return people to work and play
• We allow people to enjoy their families
and milestone events
• The future is bright for orthopedics
Thank You for All You Do for Our Patients