Terry Stone in HBR: Incremental Fixes Won’t Save the US Healthcare System


Terry Stone on the need to push harder on initiatives that put focus on value, outcomes, and experience.

Terry Stone

11 min read

According to Oliver Wyman's Terry Stone, the risk of the current "repeal-and-replace" debate is that it shifts attention away from the real challenge facing the US healthcare system: a disjointed care delivery system that results in inefficiency, overspending, lack of consumer accountability, and a sub-par experience. Here, in an article first published in Harvard Business Review, Terry makes the case for pushing harder and faster on initiatives that will shift the system toward one that is focused on value, outcomes, and experience.  

Tom Price, President-Elect Trump's pick to be the next US secretary of health and human services, is a fierce and long-time critic of the Affordable Care Act (ACA), including initiatives that restructure how some doctors are paid.

Many are interpreting this opposition to mean that he will slow the shift from traditional fee-for-service healthcare, where doctors are paid per visit, test, or procedure, to value-based care, where doctors are rewarded for quality care and better outcomes. But I hope it means that he recognizes we need to take bold action to correct our health system’s current trajectory. Incremental shifts, the approach to date, simply won’t address the real challenge confronting the US healthcare system — that is, a disjointed care delivery system that results in inefficiency, overspending, lack of consumer accountability, and a sub-par experience all across healthcare.

Instead, we need to adopt policies that result in significant discomfort for the laggards and outsized rewards for the leaders. Only then might we achieve what Price has called “the principle of healthcare that Americans hold dear: accessibility, affordability, choices, innovation, quality, and responsiveness.”

The ACA was touted as a remedy for our broken health system, but its overarching focus was expansion of coverage. It didn’t do enough to address the system’s root-cause cost and quality issues. Experts understood that to transform healthcare we needed to first shift the focus from transactional fee-for-service medicine to value-based care.

The ACA did launch several value-based initiatives. These were intended to drive change in the market. However, the way they were structured and the cautious approach to implementation has unintentionally handicapped them. There is too little penalty for staying the course in fee for service and not enough upside to take the risk of disruptive change.

Consider the Medicare Shared Savings Program (MSSP), which was created by the ACA. Under MSSP, eligible Medicare providers and hospitals can come together to form accountable care organizations (ACOs). The program provides bonuses for ACOs that reduce health spending and deliver high-quality care. It offers the possibility of even greater financial rewards for those who assume full financial risk for their Medicare patients, but few providers have been willing to take the leap. Consequently, the majority are ACOs in name only, not truly accountable for their performance and continuing down the same path as before.

In fact, the vast majority (95%) of MSSP ACOs are still operating in a largely fee-for-service payment model, working for bonuses for lowering costs, but assuming no downside risk. Few ACOs have done the hard work of changing how healthcare is delivered — moving from a physician-centric “doctor-knows-all” model to a patient-centric model that relies on a team and collaboration.

Who can blame them? Most realize that remaking their business model to succeed in a value-based care world is the right thing to do. But the push to transform their businesses occurred at exactly the same time the government was cutting reimbursement rates, putting significant pressure on hospital financials. And the reality is the pivot to value can be costly and is sure to be disruptive. By contrast, the consequence of staying in their fee-for-service world is minimal in the short term. This leaves many toe-dipping into the world of value through pilots like MSSP, while still depending on the fee-for-service model for the majority of their revenue.

The problem with this approach is it encourages players to operate completely different models with fundamentally different economic drivers under the same roof at the same time.

Accelerate value-based pilots. To achieve real change in our healthcare system, it is time now to accelerate past the pilot phase and push the industry toward value-based models. If there is any lingering doubt about the positive impact such a shift would have, note the outsized performance of organizations that are already delivering value-based care. These players use a different kind of care model, one that provides coordinated, whole-person care, as opposed to episodic, transactional medicine.

Consider Cornerstone Health Care, a multi-specialty group practice in North Carolina that wholly redesigned the care model for its five highest-risk populations and then saw the cost-of-care drop nearly 13% and inpatient hospital costs fall 30%.

Or take CareMore, a California-based integrated health plan and provider network for frail elders and those with chronic conditions. CareMore wraps services around the sickest patients and provides a variety of non-medical services (such as transportation) to all patients. It claims 22% fewer hospitalizations, shorter hospital stays, and 32% fewer readmissions than the Medicare fee-for-service average.

Or look at Iora Health, a Boston-based network of clinics that targets services to individual patients’ needs using both sophisticated analytics and a high-touch, team-based approach. It tallies a net promoter score (a measure of customer satisfaction and loyalty) of 88; the national average for primary care providers is 3. Usually only the Amazons and Nordstroms of the world see such sky-high scores.

Create discomfort and outsized rewards. These organizations offer ample evidence that the value-based approach can be successful — in terms of savings, outcomes, and improved experience. The challenge now is creating enough incentives and pressure to move the bulk of the market.

A first step is making it more painful for providers to stay stuck in their fee-for-service models. That means more aggressively reducing fee-for-service reimbursement rates relative to value-based payments. However, this isn’t just about providers; we also must challenge private health insurance companies to accelerate their shift to value-based payment models. It will be impossible for providers to succeed while operating both fee-for-service and value-based models, and so health insurers should move in lockstep.

At the other end of the spectrum, we need to pour money and attention into those who are delivering better-quality, lower-cost care. Our system should be massively rewarding the likes of Cornerstone, CareMore, and Iora that have taken the risk and made the commitment. We need outsized financial incentives and more upside for taking the risk.

The government also should encourage consumers to use the best doctors; and it could use its influence to drive volume and financial benefit to those providers that transform their models and methods. How? The federal government funds 64% of healthcare costs in the United States, yet it does little to direct consumers to the best performers. Current quality and satisfaction measures (like the consumer-friendly star ratings available at the Hospital Compare website) tend to evaluate hospitals as a whole, when the reality is that it is individual practitioners where the variation on efficiency and quality tends to occur. With that many potential customers on the table, the government could make it worth every single provider’s while to shift to value.

Finally, let’s encourage Americans to act like consumers of healthcare — rather than just patients — and give them the information and tools they need to make smart decisions that also allow the best players to thrive. We need the equivalent of Consumer Reports for healthcare or Morningstar ratings for clinical services. We also need to hold people accountable for the impact of lifestyle choices and where they choose to seek care. If you have a bad credit rating, you pay more for your credit; if you are a bad driver you pay more for your auto insurance. However, in healthcare, we do not have as much direct accountability.

What comes next won’t be easy and we might see some players fail. It will force organizational leaders to think and act outside their comfort zones. And it will require our political leaders having the guts to push through reforms that may challenge the status quo, but could make America a world leader in providing the highest-quality healthcare and patient experience at the lowest cost.