I recently ran into an old colleague who works as a consultant to one of the large national pharmacy chains. We got to talking about the various clinical services that the pharmacy has explored over the years, beyond low acuity retail care. It turns out that, after an auspicious start, the big national pharmacies are increasingly shying away from providing clinical care and are beginning to lease their in-pharmacy clinics to local healthcare systems to run.
Over a couple of posts I’ve discussed how difficult risk contracts can be for healthcare systems transitioning from fee-for-service.
There are three main problems for systems trying to blend FFS and capitation-payment systems. Two have been the subjects of earlier posts:
- Systems growing risk capability need to make big investments in population health and have to tolerate a transitional “straddle” period where the margins from FFS fall and the performance in risk hasn’t yet caught up with the cost of the risk infrastructure.
- Systems that take on a blend of FFS and risk contracts are generally loathe to differentiate services on the basis of insurance status. This means that FFS patients receive receive care management interventions available to all patients but funded by risk dollars. The improved wellness of the group’s FFS patients accrues to the insurer.
Here is an interesting exercise and an unfortunate lesson in the law of unexpected consequences:
Pop Quiz: Your elderly Granny comes from overseas without insurance and suddenly needs her gallbladder taken out. You call around the hospitals in town and they agree to extend to you the same rates as they would charge Medicare. (This is hypothetical, of course. They would treat Granny and stick you with the rack rate….. but bear with me.)
Would you expect to get the best deal at:
- The prestigious university affiliated teaching hospital
- A nice community hospital in a fancy part of town
- A large safety-net hospital downtown
- The for-profit community hospital that admits a lot of Medicaid patients in a tough part of town?
This week I gave a presentation on “transitioning to risk” at a great meeting with a large group of seasoned healthcare executives in Nebraska.
One of the points I made was this: it is important to remember that when transitioning to risk from fee-for-service, a healthcare organization has to expect a period of poor financial performance before the financial benefits of the new risk contracts emerge. These health systems are going to need to figure out how to float the organization across this period before things pick up again.
Imagine that you are an electronics manufacturer who has figured out how to build a superb stereo system at a far lower cost (20% less) than your competitors.
Over time you’ve perfected the system, created a reputation for high quality and have a machine that sounds great. Your manufacturing efficiencies position you to sell at a great price to consumers: that’s your major strategic advantage in fact.
Most medical groups considering risk contracts usually understand that they’ll need to make significant investments in population health infrastructure for capitation to work out financially. After all, capitation can only be profitable if the risk-bearing group has the ability to manage the use of expensive downstream healthcare services and minimize unneeded care.
The problem is that the relationships between investments in population health and total medical expense (TME) savings are pretty complex. You’re going to need to spend some money to save even more money. The problem is that few people can tell you where, how much or when. Continue reading
I receive a fair number of emails and Linkedin messages from healthcare executives who are interested in global risk contracts and are looking for a some advice from the provider side. Here’s what I usually tell them: Global risk can be a very good thing for both patient care and for margins– but it’s a wildly complicated business and not without its perils for participating health providers.