ACOs are here. 3-D chess, anyone?

Spock and McCoy in a Battle of 3-D Chess

While three dimensional chess has been around since the 19th century, the world remained blissfully unaware of it until made famous on Star Trek. And from what we’re learning about ACOs, the 3-D chess metaphor is playing out in the markets we serve.

Dig, if you will, the complexity

ACOs will take a bundled payment, manage care across providers for an episode, scrutinize partners for those that can drive the lowest hospital readmissions at the lowest cost, and share in any rewards or penalties. The days are numbered for the fee-for-service payments as we know them. The savings through bundling are just too attractive vs. other experiments the government has tinkered with. Bundling is showing 5% cost reductions, and nothing else even comes close to driving those kinds of savings. That’s great news from a taxpayer’s perspective; but for providers — it will challenge how we sell, how we treat, how we communicate with fellow providers, and how we get paid.

Amidst adversity there’s opportunity

The new normal for post-acute strategy is a 3-dimensional game of chess:

  1. Your strategy
  2. Your local hospital(s) strategy
  3. Your competitor(s) strategy

Your strategy

“Mirror mirror on the wall, who’s the specialist of them all?” Leading providers are thinking hard about what they are good at. We’re seeing the rise of the boutique post-acute care: heart rehab, orthopedic rehab, pick-a-rehab. Models that drive down re-hospitalizations, drive out costs, and drive up quality measures will be winners for ACOs shopping around a market. Specialization creates hyper-efficiencies that will be attractive to ACOs. Ask yourself how you can specialize and squeeze out inefficiencies in the healthcare delivery process. This includes care pathways up (streamline admissions), pathways sideways (using clinical EMR systems to drive more proactive care) and pathways out (as care is transitioned from one team to another, e.g., a handoff between SNF and a home health agency).

Help is out there: using the same Lean Manufacturing techniques that made Toyota cost efficient, Larson Allen is seeing promise with the same tools to help providers make processes hyper efficient. According to John Richter, Executive Principal for Larson Allen, “The initial results have been surprising – surpassing anything we thought possible. It should not be thought of as cost cutting (although that is the result) – instead it is a mindset shift that results in a new way of doing business focused on value. Committed executives are achieving lower costs and higher quality in the eyes of the customer.”

Your local hospital(s) strategy

Say you’re in a market with 2 forming ACOs, and they are serving slightly different patient populations and struggling with readmission challenges with different DRGs. Should you specialize and partner with both? Or hyper specialize and lock up an exclusive with one vs. the other? Firms like Health Dimensions Group can help you get your hospital strategy in order.

Your competitor(s) strategy

Here’s where things really get interesting. Competition may not come from a provider that looks like you. If you’re a SNF, you may compete with a home health agency, for example, that can produce better outcomes in serving the DRGs that hospitals care about. The other dimension we’re seeing play out is that scale is no longer an advantage. ACOs will shop region by region, market by market, zip code by zip code. They won’t care who is part of a large chain. It’s all about local outcomes. The time may come for major healthcare network consolidation, but for the moment – it’s a regional battle.

So three dimensional chess is here, and it’s a zero sum game: someone wins, someone loses. Regardless of what you choose to do, your strategic sales tool will be reports you drive out of your clinical EMRs. ACOs will be data-driven customers, expecting proof of your results.

I welcome your feedback.

Posted by Loren Claypool, VP & Managing Director, VCPI & CIO Extendicare Healthcare Services, Inc.