Health Care Reform Paper

[ 2 ] ClInICAl leAderShIp & mAnAgement reVIew

B U S I N E S S A N D C L I N I C A L o P E R A T I o N S

Accountable Care Organizations Laboratory leaders are challenged to embrace and lead

upcoming changes. Traditional fee for service healthcare,

including Medicare, neither incents nor rewards physicians,

hospitals, and other providers for coordinating care. Because

of rising healthcare costs and concerns regarding quality,

ACOs have been proposed. Dartmouth’s Elliott Fisher has

been credited with coining the term “Accountable Care

Organizations” in 2006 and the principles of ACOs were

included in the Patient Protection and Affordable Care Act

(PPACA).1 It is unclear at this time what impact ACOs will

have on laboratories across the United States. What is clear

is that ACOs are an attempt to pay for value, rather than vol-

ume or intensity of services, which is the current practice.

The Integrated Healthcare Association (IHA) stated that

ACOs are meant to “promote higher quality and more ef-

ficient healthcare delivery in the United States.”2

There are three levels of the proposed ACO Networks3. See Figure 1.

An “ACO is a local healthcare organization and a re- lated set of providers…that can be held accountable for the cost and quality of care delivered to a defined population.”4

The ACOs that meet their cost and quality goals can expect some kind of financial reward, while those ACOs that do not meet their goals will likely receive a financial penalty. The ACO needs to be able to plan its budget and resources and to implement seamless, integrated healthcare for its population of patients in different settings, both outpatient and inpatient.

Kelly J. Devers, PhD, senior fellow and Robert A. Be- renson, MD, institute fellow at the Urban Institute in their Robert Wood Johnson-sponsored study, concluded that the ACO model is “inherently flawed” and that “the weak fi- nancial incentives in the SSP payment model will not bring together these increasingly independent professionals.”5

The Laboratory Leader’s Dilemma

Responding to the Emergence of New Healthcare Delivery Models By James S. Hernandez, MD, MS

Due to the changing healthcare landscape, laboratory leaders are best positioned to ensure that their laboratories are effective, while simultaneously striving for efficiency, quality, and cost-effectiveness. This is especially true in the current healthcare environment. Since Accountable Care Organizations (ACOs) are being considered, lab leaders must understand the implications and respond appropriately.

Figure 1.

Level One ACO Network Level Two ACO Network Level Three ACO Network

No financial risk for providers Has financial risk for spending that exceeds targets

Risk for full or partial capitation

Measures basic quality, efficiency, and patient experience

Measures quality, efficiency, and patient experience

Expanded measures for quality, efficiency, and patient experience

Provides some share of savings Provides greater bonus potential for savings Provides additional quality bonuses

Volume 25 / ISSue 1 / AprIl 2011 [ 3 ]

How do ACOs differ from other attempts to control costs

and improve quality? Like HMOs, the providers, not the insur-

ers, will be accountable. Ideally, ACOs will be physician led.

Kip Sullivan states that, like HMOs, ACOs are account-

able for cost and will shift the responsibility of cost sharing

from insurance companies and Medicare to providers. Kai-

ser Permanente is held as an example of an ACO.6

Recently, as part of its transformation efforts, the Col-

lege of American Pathologists (CAP) joined the Brookings-

Dartmouth ACO Learning Network. The CAP site states that

"to help ensure pathologists have a role in structuring new

healthcare delivery models, the College has joined the 2010-

2011 Brookings-Dartmouth Accountable Care Organization

(ACO) Learning Network.” Furthermore, the CAP site explains

that “The Network is headed up by Dartmouth Institute for

Health Policy and Clinical Practice's Elliott Fisher, MD, and

former CMS Administrator Mark McClellan, MD, PhD, who

is now with the Brookings Institution's Engelberg Center for

Health Care Reform. Both Drs. Fisher and McClellan are lead-

ing experts on ACOs; Dr. Fisher is credited with launching

the ACO concept.”7 The CAP website provides numerous

examples of healthcare organizations like Kaiser and Inter-

mountain Healthcare that have been cited as model ACOs.

Dr. Elizabeth Hammond, professor of pathology at the

University of Utah, outlines the 10 steps that a healthcare

organizations can take to form an ACO and several prudent

recommendations.8 The principles embraced at Intermoun-

tain Healthcare are quite similar to the principles espoused

in the Mayo Clinic integrated healthcare system.9

For example, both Intermountain Healthcare and Mayo

Clinic employ physicians, so financial incentives are easier

to align. Both systems are integrated and their labs are

aligned with the strategic plans of the overall healthcare

systems, not at cross purposes. Both embrace continuous

quality improvements in the laboratories, including the

use of Lean principles. Both organizations make use of

evidence-based principles, using local data, to make deci-

sions in the laboratories to improve quality and safety. Both

embrace a “compassionate, accountable culture”10 and both

organizations vigorously pursue innovation.

Efforts to Increase Quality, Improve Efficiency, and Lower Costs Quality process improvement efforts are less novel today

compared to five years ago. Many healthcare systems have

adopted the principles of Lean, Six Sigma, and Plan-Do-

Study-Act (PDSA).

The reason for using Lean principles is to eliminate waste

within the laboratories and to improve quality and safety.

The primary target is improving workflow, for example, by

eliminating or greatly diminishing batching and performing

[ 4 ] ClInICAl leAderShIp & mAnAgement reVIew

tests as they come into the lab, so-called single piece flow. Six Sigma, on the other hand, is a statistical based problem solving and improvement methodology. Six Sigma is used to eliminate variation. An example in the labs is to establish a standardized process to greatly eliminate labeling errors. Six Sigma uses a framework called DMAIC in which the process is to Define, Measure, Analyze, Improve and Control the process, using various quality tools at each stage.

Many laboratories have embraced these quality im- provement tools in order to improve efficiency and quality while simultaneously lowering overall costs. Our organi- zation is actively sponsoring a Quality Academy to teach healthcare providers, side by side with systems engineers who often have Six Sigma Black Belt credentials, how to set up quality process improvement projects to increase quality and safety, improve efficiency, eliminate waste, and lower overall costs.11 Laboratorians have been trendsetters in our organization, accounting for a large proportion of leaders who have sought advanced training in Lean and Six Sigma.

For example, Lean and Six Sigma tools were used to improve turnaround times and the granulocyte and collec- tion process at our institution in the following manner:

“This was an overall look at a process that integrated many work units and incorporated the need to understand the work flow from many areas with many needs. One dramatic example from Transfusion Medicine was dealing with the granulocyte request and collection process. This included physicians from primary care and transfusion medicine, residents, the Therapeutic Apheresis Unit, the Component Laboratory and the Transfusion Laboratory. All of these units and groups of people needed to understand each others’ processes and the needs of the whole system. A systems engineer was able to help gather the information and compile it in an understandable manner. The TAT from initiation of the issue of a collected product was reduced from originally 30+ hours to 24 hours for the first product. Subsequent product collection and issue is now standard- ized and much more efficient.”12

Productivity is relatively straightforward to measure. It is a rate of work over time or a similar metric. Productivity commonly applies to clinical practice or to academic pur- suits such as publications or research grants.

The science of measuring healthcare efficiency is ad- vancing. In 2005 Hollingsworth13 reviewed 188 published papers on so-called frontier efficiency measurement. He concluded that there are applications to both hospitals and other healthcare organizations in assessing efficiency. Frontier efficiency is adapted from finance models for ef- ficient investing and includes measures of inefficiency. For example, in his original research, Zuckerman “uses a stochastic frontier multiproduct cost function to derive hospital-specific measures of inefficiency. The cost func-

tion includes direct measures of illness severity, output

quality, and patient outcomes to reduce the likelihood

that the inefficiency estimates are capturing unmeasured

differences in hospital outputs. Models are estimated using

data from the AHA Annual Survey, Medicare Hospital Cost

Reports, and MEDPAR… We conclude that inefficiency

accounts for 13.6 percent of total hospital costs.”14

What Gets Lost in the Equation? Effectiveness Though the levels of ACOs mention “quality, efficiency, and

patient experience,” there is no mention of ensuring that the

organization as a whole or that individual practitioners are

practicing effectively (doing the right thing), or whether the

chosen diagnostic and treatment modalities are supported

by evidence-based medicine. Furthermore, there is no indi-

cation that the pathways chosen in diagnosis and treatment

are medically useful, efficacious, or cost-effective. In other

words, who is tasked to make sure that patients are getting

the most effective care? Where are the incentives to align

good, effective care with the goals of improving efficiency,

cost-effectiveness, and patient satisfaction?

Leadership vs. Management Laboratory directors are responsible for the leadership

of the laboratory and working with laboratory managers

and their staff. Leadership in the labs is about producing

needed changes to cope with a rapidly changing environ-

ment and setting a strategic direction. It includes determin-

ing the effectiveness (doing the right thing) in the labs by

identifying the overuse, underuse, or misuse of resources.

Laboratory directorship duties cannot be totally abrogated

to non-physician managers, but is a shared experience.

Leadership is about setting direction, strategy, and priori-

ties. It includes mentoring younger colleagues, modeling

behavior, and motivating others to move in a direction that

they may not, on their own, choose to go.

In contrast, management of the laboratories is a shared

responsibility between the laboratory directors and laboratory

administration and management. It addresses efficiency (doing

the thing well) and helps produce predictable results by meet-

ing measurable goals. Management is about planning and

tactics. It includes defining problems clearly, solving complex

problems, tracking changes, and controlling the status quo.

Leadership is about defining the mission. Management

is about fulfilling the mission.

Invariably, there is a natural and expected tension be-

tween laboratory directors and laboratory management. As

management guru John Kotter stated, “management is about

coping with complexity…leadership, by contrast, is about

coping with change.”15 In contrast to leadership, one can be

Volume 25 / ISSue 1 / AprIl 2011 [ 5 ]

an excellent manager without motivating or inspiring others

because “control is central to management…management pro-

cesses must be as close to possible to fail-safe and risk-free.”16

Efficiency and productivity are easier to measure com-

pared to effectiveness. To some extent, they are more mana-

gerial in nature. On the other hand, optimizing effectiveness

is a distinctly medical leadership task, in consultation with

the laboratory management and the physician staff.

Finally, it is important to balance the leadership and

management duties with the regulatory and compliance

challenges that face pathologists and lab directors. This is

particularly true for medical directors of laboratories who

are predominantly anatomic pathologists. Some may be ful-

filling medical director duties and may not even realize the

critical importance of regulatory and compliance issues.17

Conclusion It is incumbent on laboratory directors, due to their medical

and scientific training and understanding of both medical

processes and outcomes, to work with laboratory manage-

ment and physician staff to adequately assess if providers

are delivering effective care. With the explosion of medical

technology, a major driver in escalating costs, lab directors

must work with clinical physician staff leaders to assess the

effectiveness of the system and of individual providers.

The major challenge is for laboratory leaders not to

lose sight of striving for medical effectiveness in the zeal

to improve efficiency, quality, and productivity. The labo-

ratory leader’s dilemma is to respond to external pressures

to increase quality while lowering costs (increasing value)

and improving efficiency, and simultaneously increasing ef-

fectiveness, which is either ignored or assumed to be present

across all healthcare systems.

Though it is still too early to provide data other than

the outcomes of healthcare institutions like Intermountain

Healthcare and Kaiser, it is clear that the Patient Protec-

tion and Affordable Care Act includes ACOs. For laboratory

leaders, this indicates that the concept of paying for value,

rather than volume or intensity of services, is in vogue again.

What does this mean for laboratory leaders and what

must laboratorians do to prepare for the coming changes?

1. Learn about Accountable Care Organizations (ACOs).

2. Be open to change.

3. Improve your systems thinking. Think about how

your laboratory delivers care in the broader con-

text of your healthcare system and how you can

assist your entire healthcare team to make your

system more efficient and more effective.

4. Champion efforts to make the laboratories more

efficient by learning more about Lean, Six Sigma,

and other quality process improvement initiatives.

5. Advocate for effectiveness – doing the right thing –

by embracing data-driven evidence to improve the

practice patterns of your local healthcare system. ◾

References 1. The Patient Protection and Affordable Care Act (PPACA), ac-

cessed 1/3/11 at http://frwebgate.access.gpo.gov/cgi-bin/getdoc. cgi?dbname=111_cong_public_laws&docid=f:publ148.111.pdf

2. Expert Says Accountable Care Organizations Must Embrace Patient Choice to be Successful, DARKDAILY, accessed 11/25/10 at http://www.darkdaily.com/expert-says-accountable-care-organiza- tions-must-embrace-patient-choice-to-be-successful-1124

3. Ibid. 4. Devers, K. and Berenson, R. Can Accountable Care Organizations

Improve the Value of Health Care by Solving the Cost and Quality Quandaries? Accessed 11/25/10 at http://www.urban.org/upload- edpdf/411979_acountable_care_orgs_summary.pdf

5. Ibid. 6. Sullivan, K. The History and Definition of “Accountable

Care Organizations.” Accessed 1/3/11 at http://pnhp- california.org/2010/10/the-history-and-definition-of-the- %E2%80%9Caccountable-care-organization%E2%80%9D/

7. New Economic Realities, CAP website. Accessed on 1/3/11 at http://www.cap.org/apps/docs/membership/transformation/new/ new_economic_realities.html

8. Hammond, E. A Path to Becoming a Model ACO. Accessed on 1/3/11 at http://www.cap.org/apps/docs/membership/transforma- tion/new/aco_model.pdf

9. Mayo Clinic Model of Care. Accessed on 1/3/11 at http://www.mayoclinic.org/tradition-heritage/model-care.html

10. Hammond, E. A Path to Becoming a Model ACO. Accessed on 1/3/11 at http://www.cap.org/apps/docs/membership/transforma- tion/new/aco_model.pdf

11. Hernandez, JS and Mustapha, M. Systems Engineers Working with Physician Leaders. Physician Executive Journal, Nov-Dec 2010: 44-48.

12. Ibid. 13. Hollingsworth, B. Non-Parametric and Parametric Applications

Measuring Efficiency in Health Care, as cited in Health Care Management Science, Vol. 6, No. 4, 203-218, 2005.

14. Zuckerman, S. Measuring hospital efficiency with frontier cost function. Accessed on 1/3/11 at http://www.sciencedirect.com/sci- ence?_ob=ArticleURL&_udi=B6V8K-45BCTHX-C&_user=130561&_ coverDate=10%2F31%2F1994&_rdoc=1&_fmt=high&_ orig=browse&_origin=browse&_zone=rslt_list_item&_srch=doc-in fo(%23toc%235873%231994%23999869996%23290247%23FLP%23 display%23Volume)&_cdi=5873&_sort=d&_docanchor=&_ct=14&_ acct=C000010878&_version=1&_urlVersion=0&_userid=130561&md 5=76a5374d7c448caec14c7480ee247589&searchtype=a

15. Kotter, John P. What Leaders Really Do. In: Harvard Business Review on Leadership. Boston: Harvard Business School Publishing, 1998: 37.

16. Ibid, page 47. 17. Hernandez JS. Are you responsible for medical director duties in

anatomic pathology--and why should you care? Adv Anat Pathol. 2011 Jan; 18(1):75-8.

James S. Hernandez, MD, MS, is assistant professor of laboratory medicine and pathology at the College of Medicine, Mayo Clinic. He is also medical director of laboratories and chair of the Division of Laboratory Medicine at Mayo Clinic in Arizona. Dr. Hernandez has a strong inter- est in laboratory leadership, management, lab utilization, quality process improvements, safety, and cost-effectiveness. He can be reached at [email protected].

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