Population Health Management or PHM is now described as the solution to many of the challenges facing the healthcare industry. Payers and providers are generally somewhere between deciding if and how it applies to them and full blown implementation. Industry vendors are designing or retrofitting their solutions and services to make it all “work”.

As always, the challenge is getting from theory to practice without going broke. Before investing in this latest and greatest approach, our clients are asking some common questions. Here are 6 of them along with our answers.

1. What actually is Population Health Management and what is driving it?

Like all buzzwords, Population Health Management (PHM) is defined by various entities according to their agendas. But we believe the big idea is as follows: Population Health Management is the integration of healthcare activities for individuals in a defined population across the entire health management continuum. This continuum includes wellness and preventive care, primary care, co-morbid disease management, acute care, rehab/recovery care, long-term care, and hospice.

The goal of PHM is to optimize each person’s health given their unique situation – health status, age, gender, DNA, socioeconomic environment, work environment, education, family situation, etc. Ironically, PHM is closely related to personalized medicine. By optimizing the health of individuals, the health of the entire population is improved.

The driving force of PHM is that the cost trend of treating sick people with the best diagnostics and therapeutics available is simply not sustainable. Healthcare spending was 17.5% of GDP and growing at end of 2014 – certainly not sustainable under fee for service reimbursement models, and probably not sustainable at all.

PHM strategies aim to keep individuals as healthy as possible throughout their lives.

2. How does PHM relate to the industry transition to Value based Care & Reimbursement (VBC&R)?

Technically, it doesn’t have to. We would benefit from overall population health optimization through lower total cost than otherwise, but also through increased productivity and quality of life.

However, value based care & reimbursement (or value based purchasing) is an approach that strongly supports PHM by incentivizing providers to manage health vs. just illness. Properly designed and executed, VBC/R incentivizes lower total cost trend (not lower cost), higher quality, and at least satisfactory patient experience and service level.

3. Will all providers be forced to move to this combined PHM and VBC&R business and clinical model?

Probably. Providers of almost every type will move to this model since most payers – government, employers, and consumers – will demand it.

How quickly the transition from fee-for-service to Population Health Management and Value Base Care & Reimbursement occurs depends primarily on local market factors. Most providers are somewhat resistant and cautious since the financial and operational changes are significant. Even so, the speed of transition is increasing.

4. What will be the impact on utilization and the provision of healthcare?

The mix of healthcare services needed by a population will begin to shift. Some expected trends include:

  • From high intensity to lower intensity (and less expensive) healthcare interventions
  • More preventive and primary care
  • Less, and less severe disease – fewer and less acute exacerbations and associated ER visits

Even acute situations should have better outcomes due to better overall individual health. Rehab will be shorter and more successful. Long-term care can be in a less intensive community care setting vs. a nursing home, etc.

5. What will be the impact of PHM on revenue cycle management?

Payer Perspective

Provider network design and management is more critical than ever. Optimizing provider performance is a high ROI financial investment since one provider impacts multiple patients.

Payers must identify and contract with providers who deliver high quality, cost-effective healthcare and patient satisfaction. Payers will be advantaged to steer a steady flow of patients to these providers to help keep them viable. This will result in narrower (but still “adequate”) networks.

Payers must measure and monitor provider performance against specific objectives. They must aggressively communicate with providers on their progress and attempt to help them improve, which will require support with high-quality severity adjusted performance data. Payers should strongly consider supporting their best providers with tools or investment for tools that support PHM and VBC&R – at least during the transition period.

Reimbursement systems must handle multiple forms of reimbursement from legacy fee-for-service (especially during industry transition) to complex risk-sharing (upside and downside) to full capitation. In fact, many emerging arrangements are hybrids of these combined in one contract.

Finally, it will become increasingly important to extend VBC/R to all provider types in the PHM continuum. This will require a definition of new performance metrics and associated measurement, analysis, and reimbursement models for providers of non-clinical, but essential, supporting services.

Provider Perspective

It will become essential for providers to be included in emerging narrow networks. You can’t compete if you’re not in the game. Providers must become more efficient/effective. This almost certainly means they must enhance clinical integration while concurrently engaging in strong cost cutting. Since traditional medical services utilization per population is expected to drop, providers must cut unit costs to maintain contribution margin per patient. Cost cutting will be much easier if providers have comprehensive cost accounting systems and processes in place. This is likely to be a significant challenge for many providers who have only very basic cost accounting capabilities.

Providers should implement bi-directional VBC/R. If a provider entity, such as a hospital or accountable care organization, is paid on value, they must be sure that their partner providers are paid on value as well. Otherwise, incentives are not properly aligned, resulting in both clinical and business inefficiency.

Providers must also enhance clinical documentation, including accurate coding to demonstrate performance and justify rates. Payers will be negotiating hard with strong data support, so providers will need to be on their game with their own accurate and complete performance data.

Reimbursement systems must handle multiple forms of reimbursement from legacy fee-for-service (especially during industry transition) to complex risk-sharing (upside and downside) to full capitation. In fact, many emerging arrangements are hybrids of these combined in one contract.

6. What are the keys to success, as well as risks and rewards, in PHM?

Critical Success Factors include:

  • Being in network for providers
  • Comprehensive data, tools, and analytic capabilities
  • Assertive patient engagement
  • Strong performance management
  • Optimized provider network design
  • Careful cash management around the expected drop in utilization revenue vs. payments for Value Based Reimbursement
  • Cost efficiency
  • Effective clinical integration
  • Full continuum care to shift the services focus to the front end (wellness, prevention, and disease management)
  • Balance performance based payments with additional volume for doing a good job – less margin per patient – more patients
  • Marketing for additional population volume

The major financial risks include challenges managing cash flow and the loss of revenue per patient and not making it (contribution margin) up in volume and improved efficiency.

If properly designed and executed, an effective PHM – VBC&R model can make you more competitive. It will create a shift in enterprise mission to healthcare vs. medical care. Specialty providers of all types may be one medical care focused component of an overall healthcare enterprise. But that means freedom to focus on highest quality most efficient care.

Transitioning the healthcare enterprise from a traditional to a population health focused business and clinical model that is reimbursed based on value is a significant undertaking. But avoiding it is no longer a viable option for payers or providers. Costs are simply not sustainable. Public policy combined with government, employer, and consumer payer pressure makes the transition inevitable. There will be disruption. Some organizations will not survive in their current form. But some will thrive. If you haven’t started planning your transition strategy, now is the time. If you are well underway, take stock of your progress and take advantage of industry best practices and lessons learned by others.