Numerof’s Abrams: It’s Time to Broadly Rethink the Entire FFS Model of Healthcare | Healthcare Innovation

Recently, Healthcare Innovation Editor-in-Chief Mark Hagland spoke with Michael Abrams, co-founder and managing partner at the St. Louis-based Numerof & Associates consulting firm. Abrams, who has followed healthcare policy and payment trends for decades, shared his perspectives on some of the more recent emerging and ongoing trends. Below are excerpts from that interview, which took place early last month.

What are your perspectives on how the funding coming out of the CARES Act has played out?

The fact is that $30 billion out of $187 billion has not yet been utilized, and there’s a June 30 deadline for them to use the funds, from the CARES Act [the Coronavirus Aid, Relief, and Economic Security Act, passed in March 2020]. The funding is there. There’s uncertainty about how to apply for the money and then claim it; the cash is out there. There have been concerns about achieving sufficient oversight, and there’s confusion among hospitals as to what they need to do to get the funds and use them related to pandemic-related expenses. It’s about 15 percent of the total that was allocated that may not actually be utilized by the audience for which it was intended. If there was a compelling reason to continue to fund this, then the government really should extend the deadline. But there’s another story here, and that’s about bailouts in general for the healthcare provider sector.

What complexity do you see there?

Understandably, in the midst of the pandemic, there wasn’t much reason to quibble over whether there should be rescue funds for the healthcare delivery sector. But the idea of continuing bailouts is certainly on the table, because while some healthcare delivery organizations actually did better in the fourth quarter in year-over-year comparisons than in the previous year—take Mayo Clinic, for example, which did fabulously well—but they also have a huge charitable trust to which the community generously gives, and had a big portfolio of stocks, which counter-intuitively did fabulously well during the pandemic. And, coincidentally, their lab came up with a test for COVID.

Other health systems also did OK, because they had high-acuity patients. So not every group was in trouble; but the group that still is in trouble is the small and rural hospitals. They don’t have the resources; they don’t have the same access to credit, they can’t float bonds easily—and they’re the ones that really need the help.

But there’s a deeper problem here, and that is that they’re using an outmoded business model, the fee-for-service model. And because you get paid for each service you deliver—it’s like running a restaurant. You get paid for every plate you set on a table, and if customers don’t show up, you don’t get any money. And that FFS model is the root of the problem, because organizations had no choice but to defer elective procedures, and for hospitals across the country, that’s the most profitable thing they do. So rather than continued bailouts, the government needs to enact policies that encourage a different business model.

With regard to that, what is your sense of how the MSSP (Medicare Shared Savings Program) program will evolve forward, and how APMs (alternative payment models) will evolve forward under CMS (the Centers for Medicare and Medicaid Services) going forward, under the new administration?

The people running the show are so new. Judging from the comments that Chiquita Brooks-LaSure has made so far, her focus is first and foremost building on the ACA [Affordable Care Act] and extending more coverage. And while she says that the impending bankruptcy of the Medicare Trust Fund is on her radar, the only thing she’s done so far is to talk about extending benefits. And this is the ten-year anniversary of CMMI [the Center for Medicare and Medicaid Innovation].

It feels as though CMMI has not yet lived up to its full potential.

Well, that’s a very nice way to put it! They’ve been funded at $10 billion a year. They’ve tested approximately 40 different models of healthcare that we’re intended to save money and/or improve quality. They’ve come up with two models of the 40 that seem to have some future potential. MSSP is one. Direct contracting is probably the second. So it’s very generous to say they’ve not lived up to their potential; I would frame it as, we’ve wasted $100 billion. For ten years, they’ve been exploring the fact that this country spends twice as much as comparable developed economies, and gets less. And for ten years, they’ve not created a reliable way to improve that. I think that that’s a very sad record. I think that Seema Verma was on the right track; she was focusing on a market-based model, with price transparency, to allow patients to know what they’d be paying for, and to allow them to shop around to see who offered the best combination of cost and quality.

I don’t know where this new administration is coming from; the last administration had to go to court to get the Supreme Court to bless the idea that people should be able to look up the price of a service they might be interested in, and to make that public. And so after a year of court battles from the AMA [American Medical Association], the Supreme Court said that that was a valid rule, and then what happened is that two-thirds of the hospitals in the country ignored it and flat-out refused to do it; and the response so far from the administration has been sending out a couple of warning letters. But when two-thirds of the hospitals in the country are not complying with a rule, I guess I would expect a bit more focus from the administration on something like that, if their orientation that a market-based model is what we need. And from my point of view, a market-based model, involving pricing transparency, that would do for us as a country what we need. Quite frankly, if that’s not the answer to the mess that we’re in, then I don’t know what is.

NAACOS [the National Association of ACOs] and other provider associations were concerned with two-sided risk, benchmarks, etc., as accountable care organization development was evolving forward under Seema Verma at CMS. What are your thoughts on that?

CMMI’s job was to find a solution, and every new idea they’ve floated, the response from the AHA [American Hospital Association] has been, we need more time, we need more time. Numeroff does an annual survey on the penetration of value-based care in hospitals across the country. We’ve now done it for five years, and you can gauge the progress by how much revenue comes to these responding organizations, in terms of upside versus downside risk; and very little has changed. Based on our survey work, the average hospital has about 15 percent of their revenues coming from any value-based contract of any kind, and that’s after ten years of participation. So I would say that hospitals will never have enough time to leave the fee-for-service model behind, because they’ve built their infrastructure and operations around it, and they don’t know how any other model works, and they’re afraid of it—of risk-based payment. And it’s pretty plain to see that the biggest driver is the decision-making of clinicians. The old joke is that the most expensive piece of equipment in the healthcare system is the physician’s pen; perhaps now that’s a computer keyboard.

But if hospitals want to change things, they have to interact with their physicians. And despite the fact that nearly half of the physicians in the country are now salaried, hospital administrators are still afraid to engage with physicians in ways that would shake their clinical decision-making. So we had questions that asked things like, has your organization created treatment pathways for certain frequently done, expensive procedures? And if you’ve created those care paths, do you use your computerized order entry system to flag departures from the care path? Do you have a process for identifying physicians who are outliers from their peers in terms of cost or quality? And do you have a procedure for dealing with a physician who is an outlier on cost or quality? And between 25 and 35 percent of responding organizations routinely do those things.

So there’s a huge gap between what needs to be done and what is being done to shape the clinical decision-making that is driving cost in hospitals across the country. And until they do that, they will always, rightly, be afraid for being responsible for costs being incurred, because they don’t have any control over it. The history of healthcare in this country has been that the hospital was the physician’s workshop. The general notion was that if they hired them all, they would do what they, the hospitals, wanted them to do, but it hasn’t worked out that way. If you can’t have some difficult conversations and put some processes in place, nothing really changes. So I understand that they feel they don’t have enough time; but if they don’t change what they do at the administrative level, nothing will fundamentally change, no matter how much time they’re given.

One of the concerns that some have expressed is the idea that increasing funding for small and rural hospitals will only disincent them from moving forward on value-based care delivery, because they won’t use that additional funding to develop any APM capabilities.

We don’t incent hospitals based on the value they create for their patients or the efficiency with which they use resources. Particularly for rural hospitals, if you enforce an approach that requires them to take steps to be accountable for the efficient delivery of resources, then you could get that value. I would certainly acknowledge that rural hospitals have the last capital, to begin with. They’re existing primarily on Medicare and Medicaid reimbursement, which most hospitals find is less than the cost of doing business. And the reason they have such lean staffing and don’t move forward around value is that they’re stretched thin: they don’t have the staff and can’t attract the staff. So if they’re going to move forward, they need richer reimbursement, but it has to come with the requirement that they change their approach. And CMS is the only payer that can do that. None of the commercial payers have the clout, or the incentive. We’re at a stalemate here, because the payers aren’t sufficiently motivated to push it, the providers certainly don’t want to push it, and CMS has been tiptoeing around this idea for ten years, and don’t seem more inclined to push it more than they have.

Might some of the advances taking place inside Medicare Advantage help move the needle forward more generally, in terms of value-based contracting?

I think it could help very much, because it gives hospitals the experience of capitation and the opportunity to learn that it isn’t poison. Medicare Advantage is growing very robustly, as you say, and it’s a very popular product with consumers, and the segment of consumers involved is also growing robustly, so the prospect that it will become a larger and large part of hospital reimbursement is very good. The question is whether we can wait for that to happen.

And rural hospitals are further behind, and remain so. And it’s ironic that just as we’ve freed up the workforce to that people can live where they want, ironically, rural hospitals are dying. If you don’t have broadband, for example, the idea of working in a rural area really isn’t viable. And by virtue of not being able to innovate, we’re just letting the rural hospital landscape deteriorate. The notion that huge portions of the country are out there waiting to be developed, settled, lived in, expanded—it could offer so much to the nation as a whole if we could do that, and it’s not happening; quite the opposite. And just like the need for population health, the pandemic really put a spotlight on the situation.

What will happen policy- and payment-wise more broadly, in the next few years?

Great question. I think we’re gathering enough momentum in the telehealth space—the pricing decisions that were temporary during the pandemic will become codified. I don’t know whether we’ll maintain precise parity with in-person visits, but it will have to be sufficiently close to in-person payment to keep it going. I don’t think that the bulk of hospitals in the country will continue to do this on a voluntary basis.

Do you have any other policy and payment predictions to share?

I haven’t seen enough coming out of the new administration to judge, but the initial comments weren’t encouraging to me. I don’t get the feeling, based on the little data that I have that the administration sees the transition to a more market-based approach to healthcare as the answer to what’s wrong. I do think that the non-traditional providers moving into healthcare will force change, because non-traditional providers like Walmart, Amazon, Apple, and on and on, are chipping away at the island that is healthcare, and that island is getting smaller and smaller, and as long as traditional healthcare organizations hang onto their bricks and mortar, will have less reimbursement to support their overhead. Either they’ll come to rely on philanthropy or they’ll have another line of business as Mayo has. But that’s really the exception. We’ve had innovation centers that have been springing up; it’s a bit ironic that hospitals that can’t seem to innovate their approach to healthcare, will be hotbeds of innovation for start-up companies. I see a lot of activity, not a lot of results.

So what happens? Traditional hospitals that can’t seem to change, will have a tougher and tougher go of it as time moves on. It has not been a terribly profitable sector for some time, and there’s a limit to how long hospitals can continue to operate in the red. My worst-case scenario is that we’ll continue to see continuing consolidation, and we wind up with a half-dozen healthcare systems that control most of the healthcare in the country. And CMS’s traditional approach to saving the Medicare Trust Fund has been to not keep up with the overhead creep. So every reimbursement dollar becomes smaller and smaller as time goes on.

So as non-traditional providers eat away at the more profitable parts of HC, those traditional providers that can’t keep up will at some point give up and become part of those largest systems; that’s where this ends—at least for inpatient care. And at that point, the only thing that hospitals will be handling will be very sick, complex patients whose care demands the intensity and capital intensiveness that traditional hospitals can handle. And everything else will be treated in the home or elsewhere.

In the early 1990s, people were predicting the rise of what were then called “super-meds.” That’s what you’re describing.

I’m not familiar with the term, but yes, that is what I’ve been describing.