CHAPTER 1

Transformation of Healthcare

It’s About Time and Money

It wasn’t long ago that the healthcare industry was unsure of whether to call their target audience “patients” or “consumers.” Why? Because patients were people who used the healthcare system. Patients would choose a health plan, but they didn’t shop for healthcare services the way customers shop in retail. Consumers shop before they buy. It’s a subtle difference in words, but a big difference in people’s behavior.

Today, there is clearly a new healthcare consumer in town. A perfect storm of the Health Information Technology for Economic and Clinical Health (HITECH) Act, high deductible health plans, and mandatory individual health insurance has left the old patient in its wake and ushered in a consumer more akin to other industries such as restaurants, clothing, and transportation. These consumers make active decisions about where to spend their dollars. As the healthcare system transitions to person-centered care, it must serve both the patient and the new consumer.

There are five drivers behind the shift from patients to consumers:

1. Consumerism’s rise: The consumer shares information and opinions; comes armed with knowledge; and shops for quality, cost, and value. While the financial industry is ahead of healthcare when it comes to customer’s use of technology, many new options for health coverage and delivery have recently emerged.

2. On-demand delivery: The healthcare consumer now has more choices available for care that meet the need for convenience, accessibility, and time efficiency.

3. Instant communication: Engaging patients is a goal of providers to encourage better health and care management. Technology has brought new methods of communication, and consumers want to utilize the same methods of communication with their providers as they use in other parts of their lives. Consumers expect online appointments, social media, and e-mail as the norm, not the exception.

4. Hyperdata: A plethora of data now accompanies the world of the new consumer to help him make choices based on quality and cost. Ratings of healthcare services, providers, and costs are becoming more prevalent and shed some light on where healthcare dollars are spent. Consumers are also contributing their own data to track fitness and monitor health conditions.

5. Predictive analytics: Analyses of historical data of patients and their treatments have become important to predicting the outcomes of patients.

Changing with the Times—Resistance Is Futile

The new healthcare consumer wants care that is centered on the individual. The old provider-centric, hospital-based model of care is outdated and doesn’t meet the needs of today’s consumers because it lacks the agility to adapt to fundamental changes occurring in healthcare transformation. The shift to a person-centered model means a holistic approach to an individual’s lifelong health that makes appropriate interventions when ill and best recommendations for a healthy life that are customized to the consumer’s lifestyle based on family history and genetics.¹

The new consumer will look for new providers who can provide what they seek. Connected providers—digital natives who grew up with smartphones, instant access to information on the Internet, interactive games, and online education—will become increasingly available for consumers to find. This generation, Provider 2.0, will use the most recent innovations such as text, virtual visits, multiple data sources, telehealth, and data sharing with the touch of a screen—as the normal way to treat patients in their new or transformed provider organizations.

Technology eliminates geographical borders of care. With changes in laws, it will be possible to keep a doctor that you and your family like even though you may move to another state or even another country. The ability to have a provider continue to offer a patient care regardless of location is the ultimate in consumer-centric care.

Although technology propels healthcare forward, the human touch cannot be totally replaced. See how the delivery of care is changing in Chapter 4.

Profiles of the New Consumers

Who are the new healthcare consumers? “There’s no single healthcare consumer,” says Mark Savage.² “Depending on their phase of life and their health or disease state, the consumer is looking for different things to satisfy their needs.”

The Changing Consumer Profile

The new consumer comes in multiple flavors, and the healthcare system must be able to satisfy these diverse consumers who have varying needs based throughout their lives. As the consumer encounters the healthcare system multiple times, he becomes familiar with how it works, how he gets billed, and how much care costs. Billing and cost will vary depending upon an individual’s type of insurance coverage (employer, private individual/family, government). Unfortunately, the explanation of benefits (EOB) and bills are undecipherable for most people, and it seems that not even the savviest customer gets used to reading or understanding them.

There are several key characteristics that affect the need to use the healthcare system and the consumer’s profile:

• Age: Younger people are generally healthier and their use of the healthcare system is low unless they have children or a chronic condition. They are more interested in improving their health through diet, fitness, and other lifestyle choices. In this age range, women will have encounters for pregnancy and men and women use the system when accidents occur. Older adults will use healthcare services more frequently for diagnostic tests and treatment for age-related problems.

• Health status: An individual who has been an inpatient experiences nearly the entire range of clinical and business systems from both the physician and hospital side. Consumers who have chronic conditions have more encounters, including the ER and skilled nursing.

• Children under 18: Immunizations and preventive care keep children in continuous view of their primary-care doctor. They visit the doctor for childhood illnesses, although some illnesses, such as earaches, sore throats, and allergies, can cause more visits in some children. Their encounters are at the outer layer of the system, because hospitalizations and elective procedures are rare.

• Insurance coverage: Insured consumers pay a premium each month so they will feel that using healthcare services is something for which they have already partially paid. Consumers with low deductible health insurance, co-payments, and co-insurance are more likely to use healthcare services because the out-of-pocket costs are lower. Insured people with high deductible plans will think carefully about using services because they must pay thousands of dollars out-of-pocket before insurance pays.

• Parental age: Consumers with older or infirm parents will encounter the system on their behalf. These adult children will influence and make choices for their parents’ care. The services they need to select can range from procedures such as hip replacement, treatment for chronic illness including cancer, skilled nursing, and home care.

Understanding the different types of consumers allows healthcare providers to understand what the customers want and determine the services to attract them.

There is a plethora of services and products for consumers that didn’t exist five years ago. This gives the consumer the power to choose what best fits their needs and lifestyle. At the same time, many choices involve paying for services out-of-pocket, which limits the reach to families with higher disposable incomes and those whose coverage includes options offered by employers. Employers may also offer wellness programs such as smoking cessation at little or no cost because both the individual and the employer benefit from the associated decrease in illness.

Consumers want choices and value. With passage of the Affordable Care Act (ACA), consumers have the responsibility to have health insurance. Now that they have to pay more for their healthcare because employers are pushing rising premium costs to the employee with an average increase of 84 percent since 2005 and 24 percent since 2010,³ and insurance plans with high deductibles are more common, consumers are more interested in cost and quality. So they are starting to shop for different aspects of healthcare much like other industries. The challenge in the healthcare industry is that the consumer does not always know what she is purchasing, and clarity is hard to find. Here are the things that consumers are looking for when purchasing healthcare.

Privacy and security are not on the list because they are the price of entry in any healthcare product and service, just like in financial services. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is expected to manage the privacy and security aspects of healthcare data for covered entities, but businesses who are not covered by HIPAA need to show their rules clearly for disclosure and sharing of their customer’s data. The privacy notices should be in plain language and prominently located in their website and marketing material.

Shopping for Healthcare

The question is: How does the healthcare consumer shop? They are using their smartphones or computers to shop online. In cases where prices are not available online, the consumer must make a telephone call. When the recommendation of a family or friend is requested, a call is highly likely.

Shopping online means reading websites, looking up reviews and ratings, and comparing scores with similar providers or services using various websites that provide comparative information. There’s a lot of information available, but if one is looking for price and quality together, the information is not often found that way. It is up to the consumer to manually sort and compare the data from the different sites. That is not an easy job, and is time consuming, for the shopper.

Healthcare companies are addressing this gap. A new company, Amino, helps consumers go beyond comparing online reviews by finding doctors who fit a patient’s needs, preferences, and condition. It’s matching algorithm is based on age, gender, and condition. The ranking is based on research that shows the number of patients treated for a condition is a good predictor of medical outcomes.⁴ After asking questions, it then searches a database of nearly 500 billion interactions of 200 million Americans to match physicians based on the number of people they have treated with the consumer’s condition and specified preferences. To keep it seamless, after selecting a doctor, you can book an appointment right in the same website and Amino will check to make sure they accept the shopper’s insurance. The benefits are that doctors get new patients, the consumer knows the doctor has treated patients with the same condition, and that the individual’s insurance is accepted by the physician.

Employers are increasingly offering options that offer access, convenience, and on-demand. This ranges from booking a telehealth (phone or video) appointment to finding the best place to purchase prescription medications. The advantage to the employee is that the functions are available any time on a smartphone or PC, it saves the employee the effort of looking up information on the Internet, appointments can be booked for televisits within 15 minutes, unproductive work time in a waiting room is eliminated, and the employee does not have to leave his workplace, a bonus.

The employer’s overall healthcare costs can go down if the employee chooses to use the options. Many of these offerings such as Castlight (integrated view across medical, pharmacy, dental, and behavioral health benefits that allows employees to shop for and manage their healthcare), Oration (enables employees to manage their prescriptions and purchase drugs at the lowest cost from their mobile devices), and Teladoc (24/7 access to a doctor by mobile app, video online, or phone call) are unknown to the consumer and many do not have experience with them. It will take some time to ramp up utilization of these new offerings as consumers become more familiar and comfortable with the recommendations made by the apps. The opportunity to use these applications will initially come from employers for their employees, but the consumer who works for a small employer or purchases his or her own insurance will probably not be aware of these services unless one spends a lot of time looking on the Internet.

How Insurance Affects Our Healthcare—Just the Facts

Healthcare in the United States is paid for by private health insurance, Medicare⁵ for the 65 and over population, and Medicaid for low-income people. Medicare and Medicaid are funded by federal and state monies, and as the largest payers, set the rules for reimbursements of services and procedures that private insurers generally follow. A growing wave of Medicare beneficiaries—approximately 7,000 to 10,000 per day are turning 65 years old—makes Medicare the second largest single payer of healthcare after Medicaid.

The healthcare payment model has always been fee-for-service, where the volume of fees increases total payments. Since the system did not penalize for duplicate lab tests or images when results were not readily available to share between physicians, tests were often ordered repeatedly—unless they were faxed. That’s because, in the past, adoption of EHRs was low prior to the HITECH Act incentives and faxing was the primary means of communicating patient information from one provider to another.

Patients are the ones who have suffered from the lack of digitization of medical records in hospitals and physician offices. Insurance pays for the duplicate tests, but patients still had to pay co-pays and needed to take time to schedule the tests and endure additional bodily exposure to needles, scans, and other diagnostic procedures. Some patients with illnesses that covered years of medical treatments had to physically carry around their medical records to their many doctor appointments for specialist care or second opinions. Today, in spite of 90 percent of hospitals with EHRs and 65 percent of physicians with EHRs, patients still find themselves carrying around paper copies of medical records spit out by EHRs and full-size film images that can’t be read by a different provider’s system. That’s because EHRs can’t talk to one another, a huge problem that is just starting to get addressed across the industry.

At the June 2015 annual Office National Coordinator (ONC) meeting, the Office of Civil Rights (OCR) made clear that patients had the right to request that their healthcare information be transmitted to a third party such as family, an application on a mobile device (app), or another organization. In Noah’s case, the problem was that the same Epic EHR software could not send and receive the data in a useful manner at another healthcare institution. This is a peek into the interoperability issue covered in Chapter 2.

Insurance coverage has vastly changed with the 2010 passage of the ACA.

Now health insurance is mandated for all,⁶ and individuals must purchase insurance if it is not provided by their employer and the individual is not eligible for Medicare. The ACA also expanded eligibility for Medicaid coverage of low income individuals to purchase insurance. The new requirements for insurance coverage caused health insurers to create new plans and remove plans whose coverage was not compliant with the ACA. The federal requirement that everyone be covered by insurance also triggered a series of changes, including the features that health plans offered and critical consumer protections.

Under the law, a new “Patient’s Bill of Rights” gives the American people the stability and flexibility to make informed choices about their health. The Patient Bill of Rights, shown below, was implemented six months after the ACA was passed in 2009, and it put an end to some of the worst abuses of health insurance policies.

These patient rights protect the consumer from some of the most common insurance company practices that discriminated against consumers. The two rights that will impact most consumers are: (1) preexisting conditions cannot be used to discriminate by charging higher premiums, denying coverage, or dropping coverage when ill and (2) preventive care with no out-of-pocket costs. Patients who engage in preventive services are more likely to catch anomalies early, making treatment more effective and less costly.

Every consumer has a right to obtain health insurance that does not cost more than a similar individual because he has a condition. This should be a comfort to healthy individuals because insurance companies cannot drop members just because they’ve been diagnosed with a condition that requires expensive or long-term treatments.

Impact of High Deductibles

The growth of high deductible plans is transforming the healthcare market into a retail market. Now, lab tests and imaging are commodity services that can be shopped by price, and retail pharmacies and standalone emergency and urgent care facilities offer services that compete with traditional providers.

The average deductible for an employer-sponsored plan in 2015 was $1,318, while health insurance exchange plans deductibles averaged from $484 for platinum to $5,724 for bronze plans.⁹ Exchange plans have high deductibles at the silver and bronze tiers and individuals purchasing these plans are eligible to receive financial assistance from Medicaid to pay for premiums. Out-of-pocket costs for premiums and deductibles have doubled to nearly 9.6 percent of household income between 2003 and 2013, according to data from the Commonwealth Fund.

It is too early to conclusively determine whether high deductible plans will affect payments to providers. Some providers such as St. Luke’s Health System in Kansas City, Missouri, have introduced pre-payment policies for self-pay patients as well as those who will owe more than $1,000 or 20 percent of the cost of their procedure. St. Luke’s provided estimates for care to all 26,000 patients in 2011 in the belief that if a patient knows what they might owe, they are more likely to make a payment.

With high deductible plans, patients will carefully consider whether to proceed with elective treatments or delay them. Providers can help by making payment plans and financing options available to patients when they seek treatment.

Another payment model being tried by employers such as Lowes offers all employees surgeries for free. The catch is that the care must be at one of the select prestigious hospitals around the nation that has a bundled payment rate with Lowes. Lowes pays one flat rate for the surgery, physical therapy, and potential complications within a given timeframe. The company has saved money even after paying for employee’s travel. Pacific Business Group on Health (PBGH) negotiates the bundled payment for Lowes and several other large employers.

The third round of health insurance for coverage in 2016 offered under the ACA took place as this book was being written. Insurers have boosted premiums for the most popular plans while increasing out-of-pockets costs such as co-pays, co-insurance, and deductibles at the same time. Other insurers have joined the insurance marketplaces as some dropped out due to losses from the exchange market business. Consumers who shop on the health exchanges are finding that it is difficult to avoid premium increases. Less-expensive plans mean less coverage and smaller networks of doctors that may not include a consumer’s local doctors. Prior to the opening of the federal market exchange, premiums for individual plans by dominant local insurers were increasing by 10 percent or more in 30 states covered by Healthcare.gov, the federal insurance exchange, according to an analysis by the Wall Street Journal.

High deductibles may spur new healthcare businesses as the consumer is looking for high-quality care at a fixed price while minimizing out-of-pocket expenses for an individual or family. Healthcare services offered in retail outlets and telehealth visits would benefit the consumer who is trying to avoid high out-of-pocket expenses. The health insurers need to keep healthy people in their plans in order to avoid only insuring and paying for the expensive unhealthy people. An insured pool of individuals must contain people whose combined care costs less than their premiums. Yet, it is difficult to accomplish keeping healthy individuals in the pools when premiums increase and deductibles go up. Moving forward, health insurers selling to individuals will need to find creative ways to attract and keep young healthy consumers in their plans.

Changing with the Times—Resistance Is Futile

The whole paradigm of healthcare is shifting. The long-standing fee-for-service model is being replaced by bundled or episodic care models. While fee-for-service has promoted volume over outcome of care to the detriment of the patient, the new models are very different because the fee is based on care for a specified episode of illness and covers all care received.

One new and promising model is the Accountable Care Organization (ACO), which is when close partnerships are formed with the idea that costs can be more controlled with partners or within a single organization. An ACO is a network of doctors and hospitals that shares responsibility for providing care to patients. In the new law, an ACO would agree to manage all of the healthcare needs of a minimum of 5,000 Medicare beneficiaries for at least three years. ACOs were created to change the incentives for how medical care is paid for in the United States, moving away from a system that rewards the quantity of services to one that rewards the quality of health outcomes. ACOs are paid on the basis of the success of the treatment administered, not on the volume of tests and procedures performed. This new model includes the ability to share patient information, which is crucial to seamless transitions of care among the network.

Another change is the recent growth in EHRs, which has occurred at the hospital and physician level. In 2014, 75 percent of hospitals (Figure 1.1) and 82 percent of office-based physicians (Figure 1.2) had an EHR compared to nine percent and 42 percent, respectively, in 2008. So far, the implementation has not crossed over to skilled nursing and other non-acute care facilities to make the information exchange electronic instead of paper. In order to reap the benefits of bundled payments, the efficiency of electronic records must be implemented at all levels of care.

Figure 1.1  EHR adoption among U.S. hospitals, 2008–2014

Source: Adler-Millstein et al. (2014); Charles, Gabriel, and Searcy (2015) (Authors’ calculations).

Figure 1.2  EHR adoption among U.S. office-based physicians, 2008–2014

Source: National Center for Health Statistics. NAMCS EHR Supplement, 2014.

The Centers for Medicare and Medicaid services (CMS) are moving to change the fee-for-service model to value and outcome-based payments. In November 2015, CMS announced that fees for knee and hip replacement surgeries would be bundled into one payment for the hospital stay and all care for 90 days afterward beginning in April 2016. CMS initiated a demonstration project after finding fees ranged from $16,500 to $33,000 for replacements of hips and knees, the most common procedures that Medicare beneficiaries receive. The five-year demonstration project is expected to save Medicare $153 million over the duration. The goal is to reduce spending without reducing quality, and improve patient care without increasing spending, and all 67 geographic areas across the country are included in the new payment model.

This is one of the first steps by the government to move away from fee-for-service toward value-based care—and to hold the institutions providing care accountable for quality. Now the consumer can look up provider quality and decide where to be treated and by whom, instead of relying on just the doctor’s recommendation or what’s in the neighborhood.

All of these changes mean that the patient profile of the past is morphing into a new one, where the individual is now a consumer, customer, and patient all merged into one. This new consumer will shop for high-quality care with good value, will expect to be able to communicate in multiple ways with providers, and be informed and engaged in his own health.

References

2015 Employer Health Benefits Survey. 2015. “Kaiser Family Foundation.” http://kff.org/health-costs/report/2015-employer-health-benefits-survey/

Adler-Millstein, J., C.M. DesRoches, M.F. Furukawa, C. Worzala, D. Charles, P. Kralovec, S. Stalley, and A.K. Jha. 2014. “More than Half of U.S. Hospitals Have at Least a Basic EHR, But Stage 2 Criteria Remain Challenging for Most.” Health Affairs 33, no. 9, pp. 1664–71.

Advisory Board. April 2016. “Lowe’s Offers Its Employees Free Surgeries. But There’s a Catch.” www.advisory.com/daily-briefing/2016/04/27/lowes-offers-its-employees-free-surgeries

Charles, D., M. Gabriel, and T. Searcy. 2015. “Adoption of Electronic Health Record Systems Among U.S. Non-federal Acute Care Hospitals 2008–2014.” ONC Data Brief, no. 23. Office of the National Coordinator for Health Information Technology: Washington, DC.

Gabel, J.R., M. Green, A. Call, H. Whitmore, S. Stromberg, and R. Oran. May 12, 2016. “Changes in Consumer Cost-Sharing for Health Plans Sold in the ACA’s Insurance Marketplaces, 2015 to 2016.” The Commonwealth Fund.

Savage, M. Director of Health Information Technology Policy and Programs, National Partnership for Women & Children (Interview on November 9, 2015).

¹ While not scientifically proven, companies are making the service available. See Arivale in the appendix.

² Interview, Savage.

³ 2015 Employer Health Benefits Survey (2015).

⁴ https://amino.com/how-it-works/science/calculating-your-matches/

⁵ Medicare also covers certain young people with disabilities and people with End-Stage Renal Disease (ESRD).

⁶ Exceptions include religious reasons, Native Americans, incarceration, and other categories. Illegal aliens are excluded from the ACA requirement.

⁷ Affordable Care Act, www.hhs.gov/healthcare/about-the-law/

⁸ Preventive services covered under the Affordable Care Act, www.hhs.gov/healthcare/facts-and-features/fact-sheets/preventive-services-covered-under-aca/

⁹ Gabel et al. (2016).