Health Care Confronts Challenge to Shift from “Volume to Value”

Posted by Steve Dubb on January 19, 2016

Health care, as we all know, is a big business. U.S. hospitals alone have $782 billion in total annual expenditures, which is roughly five percent of gross domestic product. Hospitals also purchase an estimated $340 billion goods and services, and have investment portfolios that exceed $500 billion. And health care as an industry is even larger. Last year, the Center for Medicare and Medicaid Services (CMS) reported that health care is responsible for 17.5 percent of U.S. gross domestic product, exceeding $3 trillion, a total of $9,523 per person.

As I noted here on Rooflines three years ago, the Affordable Care Act creates new opportunities for community development, as hospitals—and their associated health systems of regional hospitals, doctor’s offices, and outpatient facilities—are pushed to take on greater responsibility for health care outside of their walls. One aspect of this is community health needs assessments, which compel nonprofit-owned hospitals (60 percent of the industry) to assess community conditions and devise strategies to address at least some identified health needs.

Even more far-reaching, however, is a shift in Medicare and Medicare reimbursement from volume to value, which is moving “the Medicare program, and the health care system at large, toward paying providers based on the quality, rather than the quantity of care they give patients.” In the broadest terms, the shift is from a model of “fee for service,” where, basically, more patients lead to more hospital revenue, to “population health,” or getting paid for keeping people well. For example, hospitals who readmit Medicare patients within 30 days for the same condition as they were discharged for now face fines for excessive readmission rates. This shift puts a premium on devising strategies that can keep patients well after discharge.

The opportunity for collaboration is obvious: only 20 percent of health care outcomes concern either access to or the quality of medical care, while the other 80 percent relate to social determinants, such as poverty, poverty-influenced behaviors, and environmental conditions (i.e., issues community development seeks to address). Back in May 2013, Tom Zenty, CEO of University Hospitals Health System of Cleveland, OH, said: “Community and healthcare leaders are discovering that hospitals can help heal entire cities through economic development ... healthcare systems can create jobs and wealth ... and we can earn the trust and goodwill of our neighbors.” Indeed, University Hospitals has been widely recognized for its community development work.

But large industries move slowly. In that light, the release of a new paper by Democracy Collaborative President Ted Howard and Kaiser Permanente Vice President of Total Health Partnerships Tyler Norris—titled "Can Hospitals Heal America’s Communities?"—is an important marker. In their paper, Norris and Howard call on the health care industry to recognize “that their institutions must be accountable for all of their impacts on community health, and leveraging all of their assets to ensure the well-being of the community in which they are based.”

In reading the paper, it is important to appreciate Kaiser’s overall scale. All told, Kaiser has over 10 million members, 38 hospitals, and more than 600 medical offices and outpatient facilities. It employs nearly 200,000 people and had $56 billion in revenues in 2014. (And, with the December 2015 acquisition of the $3.7 billion Seattle-based Group Health Cooperative, it just grew a little larger). The authors note that, “If Kaiser Permanente were a for-profit corporation, it would be listed near the 50th entry in the U.S. Fortune 500.”

 The Affordable Care Act helped drive the changes being advocated for in the paper. As the authors write, “The law’s broader focus on prevention and moving healthcare provision from ‘volume to value’ has helped initiate new conversations and incentives stemming from the recognition that healthcare interventions themselves only play a small part in creating healthy people and communities.”

Kaiser calls its new focus on community health, “All in for Mission,” with a goal of “Total Health”—that is, improving community health outcomes, not just clinical results. Norris and Howard link this work to the adoption of an overall anchor mission that seeks to “consciously apply the long-term, place-based economic power of the institution, in combination with its human and intellectual resources, to better the long-term welfare of the community in which the institution is anchored.”

There are many components to this work, including supply chain policies to purchase sustainable products and services, investing in the local workforce development pipeline, purchasing green energy and creating living wage local jobs. Norris and Howard also call for new incentives, including local purchasing, hiring, and investment to help drive change internally, as well as the development of new metrics for equity and inclusion.

The challenge, as always, will be in the implementation. Still, the Kaiser paper demonstrates a new industry openness to community development, an opening that is likely to expand as hospitals face increasing federal pressure to improve health “outside the hospital walls.”

Photo credit: Fairfax County, CC BY-NC-ND 2.0)

About the author more »

Steve Dubb is director of special projects at The Democracy Collaborative, a nonprofit organization that works to carry out a vision of a new economic system where shared ownership and control creates more equitable and inclusive outcomes, fosters ecological sustainability, and promotes flourishing democratic and community life.

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