Risky Business: The Coming Sea Change

In Risky Business (hfm Magazine), Chad Mulvany describes how “payment reform will force providers to again embrace a type of operational risk that many have avoided since their experience with capitation in the 1990s." He recently sat down with Healthcare Technology News to describe these changes.


HTN: What changes do you anticipate in payment reform and what are the implications?

Chad Mulvany: I can see two types of reform that come out and specifically impact reimbursement. The first is across the board payment cuts, such as reductions to DSH (Medicare's Disproportionate Share Hospital) or the market basket update factors. These are essentially untargeted payment cuts. The other type, which is probably more important for the long term, is a reimbursement shift from volume (fee for service model that we're current paid on) more towards a focus on value. Not only are payers looking at a provider's efficiency in providing care, but also the quality level that's provided. This could come in the form of different initiatives. One example would be reduced payments or non-payments for re-admission, another would be value based purchasing where providers that offer higher quality care are reimbursed more. A few more examples would include accountable care organizations and payment bundling for episodes of care.

HTN: What types of risk will providers be managing?

Chad Mulvany: We’ll continue to manage cost risk. This is the type of risk we've always managed and as an industry we're fairly comfortable with it. We've faced it ever since the implementation of DRG's.

There's also quality risk which we've also managed but not in the sense of how it impacts actual payment, but in terms of how it impacts market share. Because traditionally we've been concerned that we were regarded as high quality the perspective that no one wants to go to a low quality hospital. Now it's coming from the perspective of payers, be it Medicare, Medicaid or even your commercial payers are will look to pay high quality providers more at the procedure level.

And then the final one is what I would call efficiency risk. It almost gets into population health risk, and bears a resemblance to partial capitation. Both accountable care organizations and episode of care bundling are examples of payment systems that push greater efficiency risk to providers. Hospitals are going to have be very conscious about the level of resources that go into providing care and making sure that the amount of resources is being matched to what the patient needs. For example, in the instance of a hip replacement surgery, making sure someone who is 85 years old and bed-ridden doesn't get the same hip that Lance Armstrong would get.

HTN: What can providers do to prepare for this coming change?

Chad Mulvany: There are a couple of things to prepare for this change. First and foremost it's going to be imperative for providers to improve integration with physicians. Doctors drive costs through their choices of how care is delivered and they have a tremendous impact on the way patients think about care. So I think it’s important hospitals are better integrated with physicians and that their economic incentives are tightly aligned. This doesn’t have to happen through physician employment. There are a lot of facilities out there that are looking at unique integration structures be it some type of co-management model for a service line or departments paying physicians for example to be an active department director. Or reaching out to community physician leaders and paying them to act as an advisory council to your organization - - obviously you have to be careful of how these arrangements are structured from a Stark perspective. Another thing that providers need to do is to focus on quality improvement. Obviously there’s been a big push for that recently. That's going to extend to looking very critically at why patients are readmitted at your hospitals or drilling down into near misses on never events and things like that squeeze them out of the system. Finally, hospitals should examine their operations not only to make sure they put processes in place to improve quality, but also to squeeze cost out of the system in a systematic manner. Many facilities are finally looking to six-sigma and other process improvement methodologies to achieve this.

HTN: This is a big sea change in health care. How quickly will providers shift to managing risk?

Chad Mulvany: There are number of very progressive organizations already doing this. These typically are the poster children for what the health care system should look like post-reform. The facilities like Geisinger and Intermountain that are already doing this and doing it extremely well. For the rest of the hospitals in the country though, it’s going to require both the public sector and the private sector to start moving the payment system to a value-based model. which is already happening through any number of demonstration projects. This is both commercial and governmental. When you look at what Blue Cross in Michigan is doing through state-wide value based purchasing, or CMS through the ACE demonstration project, they're already starting to move the paradigm in that direction. We're starting to see that shift happen now and as more of these reforms mature and come to market, it's going to push providers to start thinking that way. So facilities need to be thinking about this today.

HTN: How critical is risk management to the profitability of the providers?

Chad Mulvany: It's going to be extremely important for providers moving forward to manage quality risk and combine that with cost risk as well. As reimbursement starts moving from volume to value, at the end of the day payers are going to pay for that value - - not "Did you produce X number of services?" but rather "What were the outcomes like?"

HTN: And how critical is risk management to the quality of care?

Chad Mulvany: It's an imperative. When you think about managing quality, not only is the government looking at this, but you also see the private industry groups like Leapfrog Group with their focus on quality. At the end of the day, I can imagine a world in which not only Medicare and Medicaid are reimbursing based on quality, but you'll also start to see it in managed care contracting. One of the things that I hear from employer groups is that they've gotten to a point where they can no longer afford the rate increases unless they experienced over the last decade unless they see a commensurate improvement in value, essentially an improvement in the quality of care. This is going to make or break health systems moving forward.

HTN: It's great when there's such an alignment between costs and patient care. That sounds like good news for health care generally.

Chad Mulvany: I would have to agree with you. What's interesting is that the two aren't necessarily divorced - - in fact they're very much linked. I had an opportunity to speak with someone at Scott and White (Hospital and Clinic in Temple Texas) who was talking about their process improvement methodology. I asked if she was coming at it from the perspective of trying to reduce costs. She very specifically corrected me and said no - we look at three things when we look at process improvement. The first question we ask is it going to improve patient safety? Second is it going to improve patient satisfaction? And third is it going to improve employee satisfaction? When we end up fixing something that is a detriment to one of those three things, we find that it eventually ends up reducing costs as well. So the two are very much tied together.

HTN: Will these trends accelerate the consolidation of providers?

Chad Mulvany: I think it will. When you think about episodic payment or an accountable care organization, you need to have all the pieces in place and a fairly defined system of care.

Secondly from a financial perspective, there are a lot of hospitals that are currently struggling financially that are not going to have the capital to make the investments in process improvements. Unfortunately these are not inexpensive investments that need to be made and the way the payment cuts are structured, the financial picture isn’t getting better for these providers. So there will be an opportunity for further health system consolidation.

HTN: What is your background and your current role with HFMA?

Chad Mulvany: I am the technical manager who's responsible for following reimbursement and regulatory issues. I started out my career as a reimbursement and revenue cycle consultant. From there I was picked up by one of my clients and worked for a large health system doing everything from preparing cost reports to acting as an internal consultant looking. While I was at this particular health system I completed up my MBA and stepped outside of the industry to work as a management consultant for a couple of years. Just last year, I had the opportunity to join HFMA and just couldn't refuse it.

HTN: You must be in ‘hyper-drive’ with the current focus on health care reform. What’s it like?

Chad Mulvany: I spend a lot of time reading 2000 page bills. It's not so much hyper-drive as periods of very frantic activity whenever something new comes out from the House or the Senate. The way they work they put something out and refine it, and at that point it's sort of a dark period and you don't hear anything from them. Then two to four weeks later something else comes out and it starts again.