Roughly half the hospital systems in the U.S. are currently experiencing small operating margins, if they’re experiencing positive margins at all. The business model is a challenge, as hospital costs are rising faster than hospital organizations can raise prices. Government payers are not likely to raise their rates enough to cover the cost increase, and the commercial payers are no different. The “value proposition,” if successfully operationalized, can provide hospital systems with a different, enhanced business model and a CIN will provide improved operating margin relatively immediately, while paving the way for these margins to be realized with payers.
All of these elements were clear for me as I worked with colleagues to create a CIN, with myself serving as medical director of the network. In our case, the medical staff of the Christ Hospital in Cincinnati wanted to get ahead of the value purchasing/population health curve that was looming, and as such, we founded a clinically integrated network in 2013. That CIN was initially tasked with managing the spend of the hospital system’s health plan. At that time, the hospital spent $43 million annually for 5,000 employees and their dependents on the health plan (total lives of about 12,000). We merged the data from the TPA (third-party administrator) with clinical/pharmacy data to identify the cost drivers of the group—both the patients who were already expensive to care for, and those soon to be so. In any population health effort, the key to managing a spend of any group is to identify and engage the 15 percent or so of the group that will drive 80 percent of the cost.
As in any effort of this kind, before any savings are shared with individual clinicians, the results have to be audited by a third party. Over the first six years of our efforts, we saved the hospital system $50 million. We lowered the “per member per month” expense at the same time we improved our clinical quality, six years in a row; and more than 90 percent of the savings we generated, we applied to the operating margin of the hospital. We saved money every year we operated over ten years, and distributed money to the participating providers each year. Everyone wins, the hospital, the clinicians and the patients.
Why this is important
How is it that a clinically integrated network can demonstrate such savings and such quality? The fact is that CINs have clear advantages over accountable care organizations (ACOs), among them:
• CINs are easier and much cheaper to set up. ACOs typically can cost $5 million or more to launch, and have the additional uncertainty of if/when the effort with be financially successful. That difference is crucial.
• CINs are easier to understand on the part of all the stakeholders involved. Most clinicians don’t understand the specifics of the effort.
• Financial rewards may or may not be realized in an ACO, which presents a tough proposition for a system with challenged operating margins to start.
• CINs don’t require any new software, only a few FTEs. Startup costs amount to a fraction of those of an ACO.
• The risk/reward ratio is fantastic. There is almost no downside, gigantic upside, and the leadership will gain new confidence in getting into risk-based contracts. The providers know how to win in this new arena.
• CINs are a better, more nimble solution for employers. Employers are roughly half of the total of total healthcare dollars, and likely almost all the operating margin. Let’s face it, we ought to have a higher-value offering to propose to them.
The figure below illustrates our experience with the “per member per month” or PMPM trend. Lower costs for the population every year, five years in a row. These are audited results.
