RESEARCH PAPER OUTLINE

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Course Learning Outcomes for Unit V

Upon completion of this unit, students should be able to:

5. Analyze the decision-making process for designing and redesigning organizational structures in health services organizations.

Reading Assignment

Chapter 6: Changing Health Care Systems with Systems Thinking, pp. 77-103

Chapter 10: Three Case Studies: Mastering Change, pp. 191-256

Unit Lesson

Let’s set the stage and stress why it is important to have solid systems in healthcare operations:

 Lives: Preventable medical errors are the third leading cause of death in the United States, claiming the lives of some 400,000 people a year, or more than 1,000 people per day (McCann, 2014). There is no price that can be put on a life.

 Finances: Medical errors cost our nation a colossal 1 trillion dollars each year (McCann, 2014).

To protect patient lives and decrease our nation’s staggering healthcare costs, systems thinking is vital for to embrace as healthcare leaders. Systems thinking is the idea of looking at how each system affects the complete entity and larger system, just as one would look at an ecosystem.

In Unit IV, you explored decision making, including medical algorithms based on best practices, and operational workflow diagrams, including process flow charts. In this unit, you will continue your exploration into designing and redesigning organizational structures in health services organizations.

In this unit lecture, you will examine the changing payment methods and how they are causing a reorganization of health service organizations. You will also explore advanced tools that healthcare managers now use to organize internal systems and organizational structures, including Six Sigma, Lean, and Failure Modes Effects Analysis.

Changing Payment Methods

Historically, most industries within health care have been paid on a fee-for service (FFS) basis, which promotes quantity over quality. Now, payers (Medicare, Medicaid, commercial insurance) are rapidly changing the way providers (hospitals, clinics, facilities, doctors, etc.) are paid, moving away from production- based reimbursement methods and into value-based methods. Below is a summary of positive changes taking place in payment methods to promote patient outcomes and value, including Pay For Performance, the Patient Protection and Affordable Care Act, Accountable Care Organizations, Bundled Payments, and Risk Payments.

Pay for Performance

Speaking on how reimbursement is driving a culture of value and organizational change in health service organizations, Congressman Paul Ryan in 2015 noted that while fee for service (FFS) is the popular payment method now, by 2020 pay-for performance (PFP) methods will be the majority (Ryan, 2015).

UNIT V STUDY GUIDE

Decision Making, Designing Organizational Structures

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Title This timeline was also mentioned in 2014 by the Centers for Medicare and Medicaid Services (CMS) Director, Kathleen Sebelius, who indicated that up to 75% of payments from CMS will be value-based by 2020.

To give an analogy, healthcare providers have historically lived in a water-world (called Fee For Service) where the boat and paddle was the means of keeping afloat and advancing, but now providers are evolving and quickly coming ashore to the new land-world (called Pay For Performance) where their feet and innovation are the means of survival and prosperity. This is that precarious moment where healthcare providers still have paddle in hand and feet are in both reimbursement worlds. There will be more natural selection in this new world…and only the fittest and brightest will not just survive, but thrive!

The Affordable Care Act

While people have mixed feelings about the Patient Protection and Affordable Care Act (ACA) of 2010, the Act expands the use of PFP approaches, which is an umbrella term for initiatives aimed at improving the quality, efficiency, and overall value of health care. These arrangements provide financial incentives to hospitals, physicians, and other healthcare providers to carry out such improvements and achieve optimal outcomes for patients (Health Affairs, 2012).

Accountable Care Organizations: The main vehicle of the Affordable Care Act to promote outcomes and value is the creation of many new Accountable Care Organizations (ACOs). These are groups of providers (hospitals, doctors, payers, labs, radiology groups, nursing homes, home health agencies, etc.) which have voluntarily come together to give coordinated, high quality care to Medicare patients under a contract with CMS. ACOs have significant advantages for patients and providers including the following:

 Patients receive coordinated care across a continuum of services, usually receiving the help of a care navigator or case manager at no charge.

 Providers in the ACO can directly refer to each other, creating their own network to ensure referrals and business.

 Providers in the ACO share 50/50 with CMS for the savings they (the ACO) generate, ensuring a new source of income. o Please read more about ACOs on the CMS website link below, study and understand their

mechanics and importance here: https://www.cms.gov/Medicare/Medicare-Fee-for-Service- Payment/ACO/index.html

Bundled Payments

Bundled payments are also referred to (depending on the type of healthcare industry) as an episode payment, global payment, or case rate. A bundled payment is where the provider (hospital, surgeon, nursing home, etc.) is paid a single, comprehensive payment and must provide all expected costs for that episode of care. As such, the provider is motivated to make sure the quality of healthcare delivery and outcome for the patient is as optimal as possible, as any complications in the patient’s care would result in increased costs and financial loss to the provider against its fixed payment. Let’s look at two common examples of bundled payments you will see in practice, hospital bundles and surgical bundles.

 Hospital Bundles: In a hospital bundled payment, the hospital receives a larger payment than it would if was just billing CMS for the hospital stay, and with that larger payment the hospital is expected to become the payer for that patient’s entire episode of care. For example, the hospital becomes the payer for the nursing home and home health agency for a patient’s episode of rehabilitation (instead of the nursing home and home health billing Medicare separately). This reimbursement method encourages the hospital to coordinate the patient’s entire episode of post-acute care (PAC) by: o partnering with a select few skilled nursing facilities (SNFs) and home health agencies (HHAs),

thus, the hospital narrows its network. o having its hospitalist medical doctors’ oversee the care in the nursing home (the hospitalists are

also the SNFists).

(Free Clip Art Now, n.d.)

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ACO/index.html

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o Having its hospital case management team have a proactive presence with the SNF and home health case management teams

 Surgical Bundles (mixed as far as how common): When a surgeon receives a Bundled (global) Surgical Payment, he or she is expected to cover all professional evaluation and management costs before, during, and after the patient’s care rather than billing the insurance for each patient visit. o Obstetrics: A common example of this is obstetrics, where the OB is paid a set, global rate and is

expected to provide all prenatal, labor & delivery, and postnatal care for a normal vaginal delivery, with an increased payment for a Cesarean delivery

o Orthopedics: A less common but forthcoming example recently announced by CMS is its intention to pay orthopedic surgeons in a bundled method for knee and hip replacement surgeries. Under a surgical bundle, the surgeon becomes responsible to pay for any post acute care (PAC) the patient needs, including paying the nursing home and/or home health agency.

This Surgical Bundle method:

1. Increases Patient Outcomes: Surgeons will be financially incentivized to coordinate the patient’s whole episode of care across the continuum of the patient’s need, minimizing post-acute infections and reducing hospital readmissions.

2. Increases Surgeon’s Risk & Benefit: Financial risk is increased if the bundled amount is overspent, financial benefit value is created through PAC collaborations and the payment is under-spent.

3. Increases SNF Risk & Benefit: 1. SNF Risk: Surgeons will want to get patients to a less expensive form of care (Home Health) as

quickly as possible, bypassing or minimizing SNF Length of Stay (LOS). 2. SNF Risk: SNFs not selected by the surgeon or hospital who are used to receiving some of the

Surgeon’s referrals now will lose that referral source. 3. SNF Benefit: SNFs who are selected by the surgeon or hospital will gain more share of that

referral source. 4. Increases Payer Value:

 Surgeon will be financially incentivized to ensure the most cost efficient surgery and recovery possible (least input of cost for the best outcome).

 Payer will be billed for one global payment, not separately as is current practice (surgeon, radiologist, hospital, nursing home, and home health).

Historically, the risk has been on the payers, but now the payers are creating shared risk payment models, a canary in the coal mine of what is to come. Shared risk creates risk for underperforming providers and rewards for top performers. Shared risk creates alliances, collaboration, and communication, which creates better quality for patients and cost efficiency for payers.

Capitated Payments

Last in our list of payment reforms are capitated payments. These refer to a payment model where the provider (doctor, health plan) is paid a fixed amount of money Per Member Per Year (PMPY) or Per Member Per Month (PMPM) to provide all contracted care for that patient. Let’s look at two common examples of Capitated Risk payments you will see in practice:

 Doctor Example: A primary care doctor (Family, Internal, Pediatrics) is paid $35 PMPM for each patient on her/his panel and has 500 patients assigned to her/him ($35 PMPM x 500 patients = $17,500 a month, or $210,000 a year payment to the doctor). This reimbursement method encourages the doctor to be proactive with her/his highly utilizing (frequent flying) patients.

Capitated doctor payments are most common in Staff Model HMOs, which are organizations that have doctors, hospitals and health plans all under one common Federal Employment Identification Number (FEIN). Kaiser is our country’s largest Staff Model HMO.

 Health System Example: A Medicare Advantage Health Plan (United, Blue Cross, Cigna, Aetna, etc.) receives about $9,000 PMPY for each Medicare beneficiary it enrolls into its Medicare Advantage Plan (Secure Horizons, AARP, Blue Advantage, etc.). The health plan (insurance company) then tries

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Title to contract with providers (hospitals, medical groups, nursing homes, home health agencies, labs, radiology, ambulance, etc.) on a similar, capitated method.

For example, an ambulance company for a given geographic region receives a contract from the local Medicare Advantage Plan to provide all non-emergency ambulance services for that health plan’s members in that area. Many people do not realize that a Medicare Advantage Plan (Medicare administered by the insurance company) is a capitated (fixed amount) payment made by Medicare to the insurance company; the insurance company naturally wants to underspend that amount.

Advanced Tools to Organize and Reorganize

Now that we have explored payment methods and their effect on how we are reorganizing our health service organizations, let’s examine advanced tools you will use to create a solid system of care. These tools derive historically from Total Quality Management (TQM) and Systems Thinking models of manufacturing, the most prolific of which being auto manufacturing and the Toyota Production System (TPS). Toyota was so effective in its focus on quality and cost that by the mid-1980s and into the 1990s, more Americans were buying Japanese sedans than American. The U.S. auto industry took note and began its transformation, embracing quality tools and now American sedans are arguably as good as Japanese-produced, and Japanese- produced sedans are largely manufactured in the United States.

The story of transformation for health care is one that goes like this: medical errors are the third leading cause of death in the United States; our current healthcare cost trajectory is unsustainable; Congress and payers have created shared risk models and are rapidly shifting payments to value-based; healthcare providers are taking note and have earnestly begun our transformation toward increased quality.

One cannot blame providers, as there was no financial incentive in the former Water-World of Fee For

Service—the risk was on the payers. One must applaud all, from Congress to Payers to Providers, as we are synchronizing now more than ever before to bring about collaborations and alliances, outcomes and value.

Let’s briefly explore three models you will see in health care for quality improvement and systems thinking: Six Sigma, Lean, and Failure Mode Effects Analysis. You can become belt certified (green to black) in these methods (and you will make yourself very valuable as you do):

1. Six Sigma (decreasing defects): decreasing defects in our systems and striving for a nearly perfect, very disciplined and data-driven outcome. To have Six Sigma means your product or service has a 99.99966% chance of being within control limits of what you expect for your outcome ( i.e. the process or procedure can only have 3.4 defects per million). Six Sigma is a fanatical desire to follow methods to improve processes and promote operational excellence (Gygi, DeCarlo, & Williams, 2005).

2. Lean (operational efficiency): is arguably best captured in the Toyota Production System (TPS) model, which strives to use as few resources as possible, to be faster than competitors, and to eliminate waste. a. One such Lean system is Just In Time (JIT), or the idea of having supplies arrive just when

needed—not carrying costly and unnecessary inventory. b. Lean also involves supplies standardization. As an example, Salt Lake City-based Intermountain

Healthcare built a $40 million Supply Chain Center in 2012 to have an all-inclusive approach, managing the administrative, material management and logistics in one location. Intermountain standardized as many items as they could, from the patient plastic water mugs to hip replacement joints. Intermountain projected a $200 million savings just in the first five years (Sullivan, 2013).

3. Failure Mode Effects Analysis (FMEA) (addressing what can go wrong): identifies all possible failures in a design or process, identifying those effects and creating fail-safes and redundancies to rectify any possible issues. c. A great example of Failure Modes is the airline industry, which starts at the design phase of an

aircraft and looks at all modes on an aircraft (hydraulics, electrical, landing gear, etc.), studies what possibly could go wrong with that system, predicts the risk of failure of that system, prioritizes risks, and designs redundant systems for fail-safes.

d. Another great example is NASA, which step-by-step collects knowledge about possible points of failure in a design, deciphers the consequences, determines how frequently a failure might occur, ranks the failure by importance then reverse engineers solutions to maximize safety and controls.

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Title Six Sigma and Failure Modes are sometimes called a fanatical approach to commitment to quality. Quality is value and in health care we are talking about human life, which in invaluable. Join the journey, study and become expert in your industry of health care, become a Change Agent and bring about good in your part of the healthcare world!

References

Free Clip Art Now. (n.d.). Kayak [Image]. Retrieved from http://www.freeclipartnow.com/recreation/boating/kayak.jpg.html

Gygi, C., DeCarlo, N., & Williams, B. (2005). Six sigma for dummies. Hoboken, NJ: Wiley Publishing.

Health Affairs. (2012). Pay-for-performance. Retrieved from http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=78

McCann, E. (2014). Deaths by medical mistakes hit records. Healthcare IT News. Retrieved from http://www.healthcareitnews.com/news/deaths-by-medical-mistakes-hit-records

Ryan, P. (2015, February) Health Care Value Summit. Salt Lake City, UT.

Sullivan, K. (2013, October). Intermountain’s supply chain boasts efficiency, lower cost. Fierce Healthcare. Retrieved from http://www.fiercehealthcare.com/story/intermountains-supply-chain-center-boasts- efficiency-lower-cost/2013-10-28