St. Luke’s has made a big move into value-based care.
Recognized for our leadership in this area is today’s guest blogger, Jeff Taylor, senior vice president and chief financial officer for St. Luke’s Health System. Here Jeff, who recently has been participating in national conferences to speak about this transition and the role of innovation, shares thoughts and observations.
- David C. Pate, M.D., J.D.
Twice in recent months, I have taken part in national conferences of some of the largest and most successful players in health care, health care financing and innovation as a speaker or audience member.
Both times, I have been struck by just how advanced St. Luke’s approach is – and I can tell by audience reactions that some are having a hard time believing our relatively young health system is ploughing very new ground in a very rocky field, with some pretty fixed ideas about what is possible.
In Boston, I participated in a panel discussion with two other chief financial officers. This particular conference brought together those making early-stage investments in health care (venture capitalists), leaders of innovative health-related companies, a handful of representatives of traditional provider systems (such as St. Luke’s), payers and a few others.
The conference was a fast-paced, one-day event that started with an interview of Jeff Immelt, former chief executive officer of General Electric, followed by numerous panel discussions that included the CEO of IBM Watson, the chief medical officer of CVS and the former assistant secretary of Health and Human Services, among others.
I was scheduled to speak toward the end of the day. Needless to say, I was quite nervous, given the stature and experience of other presenters. The other two panel members were CFOs from large systems in other markets. We were asked to discuss how innovation fits into the future of health care finance, and specifically, how innovation might be embraced differently under different payment models, whether fee for service or value.
You might, at this point, ask why the interest in St. Luke’s.
The conference moderator knew we’ve recently made a giant pivot to value, which was not the case for the two organizations represented by the other panel members.
Here’s what we mean by value in this context. A value-based payment model refers to an agreement that a health care providing entity be paid a fixed amount for a defined population for a specified period, regardless of the actual resources needed to care for the population.
Here is a brief snapshot and example of St. Luke’s experience with these arrangements.
Effective Jan. 1, 2017, we entered into the Next Generation ACO program with Medicare. As part of that program, the contractual understanding is that we will be paid approximately $300 million for a defined population of approximately 30,000 Medicare beneficiaries in our service area.
As part of the program, and on an interim basis, Medicare intends to pay claims as it historically has done and as of the end of period on Dec. 31, 2017, they would provide a reconciliation of the actual amount paid, compared with the original agreed-upon amount of $300 million. (At this point in mid-January, statements and payments still are settling out.)
If the actual amounts exceed $300 million, St. Luke’s and the independent, affiliated providers that are participants in the ACO will be obliged to pay the difference to Medicare.
If the actual amounts paid are less, Medicare will pay the ACO for the difference.
So, for example. if the actual spend was $290 million, Medicare can be expected to write an additional check for $10 million to the ACO. And of course, if the spend is higher, we will need to absorb the difference.
Health care is a conservative institution; you can see why many would rather hang on to the bird in the hand. So while many health systems acknowledge moving to value as the sensible long-term strategy, very few are actually doing it in a transformative and meaningful way.
So this stake in value was one reason they wanted to hear from us. The moderator was also looking to highlight the impact that innovation can have and can be expected to have as the transition of the industry continues to shift more toward value.
Early in the day, I heard a participant observe that “Significant disruption has yet to occur in health care.”
I tend to agree, and during my panel discussion, I suggested to the audience that one of the reasons significant disruption has yet to occur is due to the historical fee-for-service payment model that continues to reward volume over great care and outcomes, the value approach.
But here is the interesting thing. Our early experience at St. Luke’s is that moving consciously, thoughtfully and meaningfully toward value is causing, at the same time, a move toward innovation.
Here, very simply, is why. The areas that previously would have drained revenue are now draining cost. The model flips, and things that were not “values,” that is, values in the less financial sense of the word, defray our costs.
Because 35 percent of our total revenue is now in value-based arrangements, we are beginning to attain the critical mass to embrace disruptive activities. We are beginning to have a business model to support it.
Here are some of the innovations, the disruptions to business as usual, that this shift has paved the way for St. Luke’s to embrace: remote home monitoring and other telehealth solutions; chronic disease management programs; prevention efforts involving the deployment of personal wearable devices focused on prevention, diagnostics and monitoring; and many, many others.
All of these advancements were represented at this conference, but not necessarily as the beneficial result of a business model that creates the space for the innovation to proceed, which is the experience we are having here at St. Luke’s.
Again, we are in the very early stages of this evolution. We don’t know yet how 2017 will settle out.
But as I said, this was one of two recent conferences. Many are beginning to take notice of what we are doing. It’s an exciting time for St. Luke’s and to be our organization’s leader in finance, on the front line of this journey with the St. Luke’s team, is an honor. I’m excited about our future!
Jeff Taylor served as the senior vice president and chief financial officer at St. Luke’s Health System. He retired in 2022.