Brave New World: How Health Care Will Survive in a Post Fee-for-Service World

By Melinda Rogers

When Vivian Lee, MD, needed to find innovative tactics to reduce costs in the health care system, she looked to an airbag manufacturing plant for inspiration.

The idea seemed unorthodox at first. After all, what could a factory that manufactures airbags for cars have in common with a health care system? But Lee, Senior Vice President for Health Sciences at the University of Utah, Dean of the University’s School of Medicine, and CEO of University of Utah Health Care, was willing to think outside the box.

In a time when the health care industry was in the midst of an unprecedented overhaul, she was ready to stretch resources that might help navigate the unfamiliar path of switching from a fee-for-service payment model to embracing population health management.

She hit the road to Ogden, Utah, one of many field trips she and other administrators at the university have taken to learn strategies to help the health care system reinvent itself. Lee learned that the airbag manufacturer, Autoliv, and the health care system shared a common goal: to save lives. And she discovered that both entities desired to operate as efficiently as possible through implementing LEAN, a business philosophy for reducing costs and lead time in the work environment. The philosophy calls for increasing quality through focusing on reducing waste and variation in all processes, a theory Lee took back to the University of Utah. The excursion also taught Lee an important lesson on perspective: Sometimes you find the ideas needed to generate change in places you least expect it.

Lee shared that experience and others with colleagues from across the U.S. who gathered in Philadelphia today to attend the American Association of Medical Colleges 2013 annual meeting. Lee, along with Lloyd Michener, M.D., of Duke University’s Center for Community Research, were featured panelists at the session entitled “Preparing Your Institution for a Post-Fee-for-Service World.”

Lee outlined several practices at the University of Utah that have been initiated to improve operations in the emerging era of population health management. For example, the university partnered with the David Eccles School of Business to cultivate several LEAN projects across the campuses that have resulted in streamlined operational practices. Her institution also developed a first-of-its-kind costing tool called VDO, or Value Driven Outcomes, which better calculates the cost of health care.

VDO came to fruition after Lee called for a collaborative effort at the University of Utah that paired finance experts, bioinformatics professors, and administrators to figure out a solution to the problem of calculating costs.

“The real issue in health care is that we don’t know the actual cost of providing care,” Lee told colleagues at the AAMC session. “We don’t know how much it costs to draw someone’s blood. We don’t know how much it costs for a minute of nursing time.”

Borrowing from a  2010 article in the Harvard Business Review by Robert Kaplan, she noted, “’For a field in which high cost is an overarching problem, the absence of accurate cost information in health care is nothing short of astounding.’”

VDO allows analysts to break down expenses over the cycle of a patient’s care to compare money spent with outcomes. The tool starts by taking 135 million rows of the institution’s billing, clinical, general ledger, and payroll data and allocating it at the patient visit level in the university’s system. This allows everything from the cost of gauze tape to minutes of nursing labor to be measured. The tool then integrates quality data including mortality, length of stay, readmissions, bleeding and infection rates to compare the costs to outcomes.

The tool allows users to adjust for various clinical situations, such as the severity of the case or a specific type of patient. Adjustments make it easy to identify variations between providers, processes, and supplies and to figure out the causes of cost variability. Calculating these differences allows the institution to change practices and boost cost efficiency.

While VDO has been successful at the University of Utah, Lee said another key component of helping institutions transition into a model of population health management is serving as a leader who is setting the example of embracing change.

She used world-renowned pancreatic surgeon Sean Mulvihill, M.D., as a case study. Mulvihill, a master of the Whipple surgical procedure, changed his thinking about population health management after realizing that it was vital to the industry’s survival, Lee said. Mulvihill, who oversees the University of Utah’s faculty practice group, spent the majority of his career in the fee-for-service model, but has seen the light of the importance of population health management, Lee said.

“Change must start from the top. Leadership must be committed to change,” Lee said.

Michener, who spoke about improving outcomes and lowering costs in diverse North Caroloina communities, noted that for everyone in health care, the challenges of a shifting industry are ongoing.

“This is a journey we take together. We do it collectively and learn from each other,” Michener said.

–Melinda Rogers is a communications specialist at the University of Utah Health Sciences Office of Public Affairs. She is reporting live at the AAMC 2013 annual meeting. Follow her on Twitter @mrogers_utah.