2016’s Surprising Driver of Healthcare Cost Containment

Stakeholders agree that healthcare spending must decrease to ensure sustainability. Most of the focus has been on the partnerships that have emerged between payers and providers to manage costs by establishing incentive-based payment models that pay for value rather than the volume of services delivered. Successful value-based care requires systems that manage electronic clinical and claims data combined with sophisticated analytics – both of which are becoming more widely adopted.

But payers and providers aren’t the only stakeholders in the healthcare sector seeking a better way to control costs. Purchasers – employers or other large groups that buy health insurance on behalf of their employees or members –ultimately fund the industry, and they, like payers, are starting to take advantage of electronic data and analytics to contain their healthcare expenditures.  Large companies are accustomed to analyzing transactions to optimize their supply chains and may be the best stakeholders to stimulate industry-wide cost reduction.

One of the consensus predictions for 2016 is that employers will begin to take action to reduce healthcare costs. There are signs that activity in this area is already underway.

 The Health Transformation Alliance (HTA), formed by 20 large employers, will pool data about its collective four million employees to examine costs, population health, and risks with an eye toward improving outcomes and negotiating with health plans and pharmaceutical companies.

HTA’s first effort will reportedly focus on lowering prescription drug costs. This is an area where it can be easy to spot patterns of inefficiency with enough data – for example, using name brand drugs when lower-priced generics are available or filling prescriptions at retail pharmacies when mail order discounts are available.

Optimizing prescription drug benefits is a good first step, but it’s only the tip of the iceberg. HTA hasn’t stated what it will tackle next, but it seems reasonable to imagine it would follow the lead of companies like Castlight and Welltok, which are merging different sets of public and private data to make predictions about the healthcare costs for groups of employees that match specific profiles. 

There are inherent privacy risks when employers try to influence the personal lives of their employees. Balancing privacy concerns against cost savings will be an important and difficult part of employer initiatives to control healthcare costs. Chances are there will be some missteps along the way.

The companies involved with HTA, as well as those using robust vendor solutions to collect and analyze employee data, are large enough to have a critical mass of employee data. They are also large enough to afford an investment in cost-reduction programs. But how can these initiatives scale down to accommodate smaller purchasers? Small companies that don’t have enough data or resources to copy these programs will have a much harder time taking control of their healthcare spending until tools and services become common enough that they’re able to participate in these types of initiatives.

For too long, health insurance purchasers have had few choices to control costs. They could change insurance providers, switch to plans with higher out-of-pocket costs, or stop providing coverage altogether. At least for large employers, 2016 will be the year where they use data to gain control over their healthcare costs and focus on employee wellness.

HIMSS 2016 Trends

Recently, I had the opportunity to write a guest blog post for Electronic Health Reporter about what to expect at HIMSS16. For the post, I reviewed the titles and categories of the educational sessions to see what the popular themes are for this year’s conference and matched them to last year's topics and categories to identify trends (Figure 1).

While it wasn’t my focus for the Electronic Health Reporter blog, I did notice a number of places where the HIMSS trends overlap with my 2016 consensus predictions for Health IT.

The HIMSS Conference and Exhibition is always a good barometer of the healthcare industry’s current state and direction, but this year will be particularly interesting because of the major changes underway in healthcare.

Figure 1. To get started, I created a visualization of the data in order to see how the educational session categories are trending and morphing over time to identify the top session categories and topics.

Privacy and Security 

Medical records and related data have reached the point where most information is stored electronically, and we are increasingly able to share and reuse data. However, the significantly higher risk of the data falling into the wrong hands is an unwanted side effect of electronic, portable data.

The number of educational sessions about privacy and security doubled this year compared to last year, reflecting the industry's focus on reversing the trend of increasingly serious data breaches and a reaction to new federal regulation.

Aligned with prediction #4, we should expect to see new technologies and sharing of best practices at HIMSS this year.

Interoperability

Interoperability no longer refers to connecting systems within a single hospital. The new challenge is to move data among different institutions, and this is reflected in the fact that the Health Information Exchange and Interoperability categories from 2015 are combined this year.

When exchanging data among organizations becomes as common as integration within institutions, effective care coordination will be possible (prediction #5).

HIMSS attendees should expect to see case studies of successful cross-organization data sharing and updates on interoperability standards.

EHRs and Meaningful Use 

Electronic Health Records (EHRs) will always be a key piece of an institution’s infrastructure because they contain the official, legal records of patient encounters. EMRs are optimized for documenting and generating billing codes for episodes of care. But as healthcare delivery and reimbursement moves to a model that requires continuity of care across different settings, new, community-wide tools will be required, as I indicated in prediction #10.

The EHR’s decline in prominence coupled with the fact that meaningful use (MU) is winding down, accounts for the fact that the EMR and MU category has only about half the number of educational sessions as last year. 

Innovation and Entrepreneurship 

The 2016 prediction about mobile apps, wearables, and the Internet of Things (prediction #7) is included in the Innovation and Emerging Technologies category, which contains more than twice as many sessions as 2015. The Entrepreneurship and Venture Investing category is new for 2016. These two categories demonstrate the fact that we are experiencing a significant shift in the healthcare industry, which is proving to be a fertile environment for innovation and new opportunities.

 HIMSS16 will be an interesting checkpoint to see if the consensus predictions remain on track for this year.

The CIO and IT Department: Partners in Change

The IT department’s mandate is changing in the healthcare industry, which means the CIO’s role is also shifting. These changes trace back to the transformation currently underway with delivering and paying for healthcare. In this article, I will examine the roles of IT and the CIO under a fee-for-service system and show how they will evolve as we move to outcome-based reimbursement.

Fee-For-Service

Under a fee-for-service model of healthcare payment, patients visit the doctor when they have a problem, receive diagnostic tests and treatment, and a payer receives the bill. The possible variations on this pattern are endless, but fundamentally the system is about making sure that patients, tests, treatments, and bills are tracked and routed properly, which boils down to a complex data processing problem. 

In such an environment, the IT department’s mandate is to provide reliable, high throughput data processing systems and services, such as EHRs, lab information systems, and (most importantly) billing systems. These are essentially an automation of an antiquated paper-based system, so they have high tactical value to the healthcare organization, but they are not at the core of the organization’s business.

The CIO, therefore, is focused on providing value to the organization by delivering operational efficiency.

Outcome-Based Reimbursement

Under new forms of healthcare payment, populations of patients need to be managed to optimize quality and cost. This requires analytics and care coordination systems to identify cohorts and gaps in care. It also requires a high degree of advanced interoperability so that data travels through the health system along with the patient to provide high quality coordination of care. Such activities go beyond data processing into the realm of managing information, insights, and workflows.

The IT department’s mission needs to shift toward treating information as the critical business asset that it has become, which includes engaging with experts throughout the organization to develop solutions that specifically support the new initiatives required by outcome-based reimbursement.

As the executive in charge of the healthcare organization’s information assets, the CIO’s role becomes broader and more strategic. What was once a focused, highly technical position is expanding to include complex technology, security, and even clinical issues. Because an individual executive no longer has the expertise or time to handle the full breadth of necessary activities, CIOs are beginning to add CTOs, CISOs, and CMIOs to their teams. 

According to John Halamka, M.D., healthcare CIOs will move away from their traditional roles of technical expert and strategist. Their responsibilities will change to focus on communication, governance, and coordination of work across an ecosystem of stakeholders. In fact, CIO Magazine predicts that IT departments will increasingly be run by non-CIO executives because factors like analytics and cybersecurity are becoming business issues rather than IT initiatives.

Look for the "Office of the CIO", comprised of several C-level executives, versus an individual executive to lead the IT department of the future. This division of labor enables each executive to have a narrower but deeper focus to navigate increasingly complex regulatory and business requirements.

Leading a group of executives instead of directly controlling the IT department shifts CIO priorities. Technical expertise, vendor selection and infrastructure will become less important aspects of the CIO's day-to-day work, replaced by budgeting, operations and coordination.

Healthcare IT Organization and Infrastructure: Ready. Set. Change.

Changes in healthcare delivery and reimbursement models are disrupting the way healthcare organizations and IT departments, in particular, operate. This rapidly-evolving healthcare business climate demands an innovative and agile IT department that can maintain its core systems.  

 IT Departments have traditionally focused on reliable, high volume, transactional systems and infrastructural services, sometimes called "low speed" activities. This approach is out of sync with the the emerging needs of the IT department’s customers within the healthcare organization, which require a more responsive, agile, "high speed" way of working.

CIOs are beginning to recognize there is value to both approaches. Consultancies, such as Gartner and McKinsey, recommend a "both/and" approach to structuring IT departments and projects. Gartner calls this style of IT management "bimodal" IT, andMcKinsey calls it "two-speed."

At the same time, IT departments are seeing changes in the infrastructure used to support their initiatives. In what is becoming an outdated model, a small set of vendors provided the infrastructure that was managed by an enterprise's IT department in its own data center. Today's infrastructure is typically cloud-based and increasingly commoditized.

A cloud-based infrastructure simplifies hardware procurement, system management and security. It also implies that an enterprise must share control of its information assets with third party cloud providers. While such a notion has traditionally been a sticking point for health IT departments, attitudes are shifting.

The trends toward a two-speed architecture and outsourcing infrastructure have implications for department structure, IT infrastructure, and budget for 2016 and into the future.

Department Structure

IT departments that are structured around the low speed model should re-organize around a two-speed model. In addition to running appropriate projects in a high speed style, they must organize employees, processes, governance, and internal as well as external communication around a two-speed approach. 

IT Infrastructure

While low speed assets will likely remain hosted on premises and managed internally, IT departments will want to transition as many applications and services as possible to cloud-based deployments, especially for the high speed side of the department. One example of a successful migration of a high speed resource to a cloud infrastructure isMedstar Health, which reduced the cost of web site hosting by 40% while improving performance and uptime.

Budget

Although outsourced infrastructure may result in a cost savings, overall IT budgets must increase to meet the new business challenges presented by new, value and quality-based healthcare models.

Currently, there isn’t a software category for systems that fully support the emerging models of alternative payments, in part because the reimbursement models themselves remain in flux. IT departments can’t rely on their usual methods of identifying, evaluating, and selecting mature products from a set of established vendors. To keep pace with dynamic business conditions, IT departments should morph into IT development shops, building their own solutions to meet their organizations’ specific needs.