Much of the buoyancy I have seen at the Congress on Healthcare Leadership this week stems not from government mandates or pressures from payers, but from the work that health systems have done to surmount those hurdles. The focus on value instead of volume has created a real need for healthcare providers to work together for the benefit of the patient. Lots of good work went on in healthcare in the past, but let's be honest, the long-term health of the patient was too often secondary.
Still, there's no doubt that the transition to value is rough, even for top performers. Mark Eustis, president and CEO of Fairview Health in Minneapolis—one of the top 10 health systems in the U.S., according to Thomson Reuters—says this period is highly stressful even at his organization. Fairview made only a 1% margin last year, as it had to work hard to get critical mass with value-based commercial contracts.
That's a huge oversimplification of the transformational work that Eustis's system has done, but there is one big reason for the smaller profits: Fairview cut utilization, which meant an immediate revenue hit as the organization transitioned from fee-for-service.
Fortunately, Eustis sees that 1% margin as a temporary blip. Fairview predicts a 3% margin in 2012 and 5% in 2013, as it moves almost entirely to value-based reimbursement. In describing the transformation, it's difficult to avoid terms like "capitation" and "managed care," which are still dirty words to a lot of healthcare people. Although that language is close to describing what's going on, what has changed is who's managing the care.
The difference this time, executives say, is that the healthcare provider is incented to keep its patients healthy because the provider keeps some of the savings, rather than the health plan. Better yet, the parties share the savings. The tools to manage care are also much better now, and the team-based approach to improving health is a welcome change.
So there is light at the end of the tunnel if you manage the volume-to-value transition well. The important thing, so many healthcare leaders seem to be saying, is to get started.