Project Tests Direct Contracting for Surgery

Robert D. Sutton, for HealthLeaders Media , March 29, 2010

How to prepare for changes
Hospitals and physicians can do several things to prepare for possible changes including:

  • Affiliate with a large integrated delivery system for the disease management including pre- and post-surgical care
  • Determine one disease that your hospital can manage better than others
  • Use the idea of contracting within your own health system as a basis for improvement, and/or
  • Measure and manage your true costs and develop a contracting arm if the resources are available

One potential solution is to develop an affiliation with a large integrated delivery system. With access to peer review, clinical protocols, and possibly technology, a hospital, even in a disparate geographic region, may play a significant role in the care of the patient including pre-admission testing, post-surgical visits, and ongoing disease management.

For hospitals with a true proficiency in managing a particular disease, that strength can be used to leverage contracting agencies to encourage patients to that hospital. The proficiency has to be measurable against peers and the hospital must include specific information to differentiate itself from competitors. Indicators should include better quality outcomes, lower readmission rates, lower cost, and better pre- and post-care follow-up. The hospital has to build a core competency that includes physicians in that specialty, after care, and education. The culture must shift from one of creating volume and move to one of managing the disease.

For example, large health systems, many of which are self-insured, might challenge the hospitals in the system to bring down costs and improve outcomes by creating competition among the hospitals for specific procedures. Most health systems have access to data that can monitor costs and outcomes centrally to ensure that none of the hospitals game the system. The win for the health system is the prospect of hospitals' improvement to gain the business and lowering overall employee health benefit expense.

Lastly, begin measuring and managing costs and outcomes. Too often, hospitals and physicians go after revenue without consideration for costs or outcomes because that is how they have been historically paid. Costs and outcomes are imperative for the future. Although access to care seems to gain the biggest sound bite in healthcare reform, it is only a matter of time before cost and outcomes are the centerpiece of government payment.

Whether the agreement between Lowe's and the Cleveland Clinic becomes the norm or an isolated event, health benefit costs cannot rise unabated. The people who pay the premiums will create control mechanisms like PHA firms. The government will seek to rein in spending through pay for performance, payment bundling, or yet to be determined payment mechanisms. Whatever form healthcare takes in the coming years, hospitals and physicians must be prepared to manage and measure cost and quality outcomes instead of chasing every procedure and test.

Robert D. Sutton is partner at IMA Consulting.
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