A few weeks ago, I was at the sold-out University of Southern California (USC) C-Suite Invitational in Los Angeles where I watched keynote speaker, Dr. Josh Luke, speak on value-based care and the future of our healthcare system. I watched as he energetically shook some sense into a room of hospital executives for about an hour. It was captivating and professional, but every few minutes I could see attendees squirm in their chairs.

Getting to know Josh over the past years, I realize he is healthcare’s version of that “ignored expert” in movies who predicts that a major disaster is about to happen, but none of his colleagues believe him until Earth is a few days away from obliteration. In the original Independence Day, it was Jeff Goldblum playing David, a MIT-educated scientist and computer expert who was called upon at the 11th hour to save the day.

Josh Luke is healthcare’s Jeff Goldblum. Let me explain.

Starting in 2012, Centers for Medicare & Medicaid Services (CMS) significantly changed the way they paid hospitals. Instead of paying for healthcare services on a volume basis, like the number of hospital stays, CMS is now paying providers based on the quality of care they provide to their Medicare patients. Additionally, the Affordable Care Act (ACA) authorized CMS to reduce payments to acute care hospitals with higher readmission rates and expanded the use of pay-for-performance approaches.

Shortly after these changes took place, the ensuing hospital panic began.

By 2013, Josh Luke — who became a hospital CEO at the age of 32 and went on to publish two books on readmission prevention and value-based solutions — became one of the most sought-after hospital consultants in the country. He founded the National Readmission Prevention Collaborative in 2013 and the National Bundled Payment Collaborative in 2015 to showcase some best-practice integration models. Hospitals who struggled with these new value-based initiatives and needed help improving their care coordination to avoid penalties were willing to pay a pretty penny for his advice.

For as long as most of us can remember, the more patients that landed in the ER, the more revenue that hospital generated. Many refer to it as a “heads in beds” mentality. Now, CMS and insurance companies (who own most of the the dollars) are pressuring hospitals to clean up their acts. Basically, hospitals are taking on more risk than ever before.

There were five overarching messages I took from the presentation (the same one that made everyone in the room uncomfortable) that I will try to explain to the interested layman through the use of analogies.

1. Hospitals are giant insurance companies now.

At the end of The Godfather Part II, after Michael Corleone watched his father pass away peacefully in a rose garden, Michael suddenly realized that he had take over his father’s messy drug business, whether he wanted to or not.

That’s what’s happening to hospitals right now. Hospitals are in the insurance business, whether they like it or not, and the boundaries between being a payer and provider is blurring as hospitals face more risk. “If you are the CEO of a hospital, you are basically the CEO of an insurance company,” Josh exclaimed to the crowd.

2. Skilled nursing facility (SNF) avoidance is real.

“Find me one American that wants to stay in a nursing home!”

Josh yelled this once or twice to the audience, and ironically, he is a licensed nursing home administrator himself. Home health (medical) combined with home care (non-medical) will continue to work symbiotically to create a new breed of home care workers I like to call “post-acute care extenders,” or PACERS for short.

These PACERS are like German Shepherds in the home — they are smart, well-trained watchdogs who provide love and companionship most of the time, but bark really loudly when they sense danger. Also similar to the PACERS, they are not usually the ones fighting the intruder, they’re trained to notify someone else of any incoming danger.

3. Hospitals should use their “risk-free” year more wisely to test new programs for bundled payment initiatives.

In 2015, the CMS took significant steps to expand the use of their bundled payment programs. By November 2015, CMS announced over 450 hospitals and even more physician groups and SNFs signed up for the program.

Then in April 2015, CMS initiated a rule for a new Comprehensive Care for Joint Replacement (CJR) initiative, which forces over 800 hospitals to set a spending target based on performance from previous years. The hospitals basically go “at risk” because their total cost of treatment is always going to be different than the amount they get reimbursed. Unfortunately, many hospitals are electing to “sandbag it” the first year in order to set their benchmark low.

Stick with me for this analogy.

Usain Bolt astonished the world when he broke the 100 meter world record at the 2008 Beijing Olympics while barely breaking a sweat. About 80% through the race, he casually looked up to the crowd, thumped his chest in defiance and crossed the finish line with one shoelace flapping in the wind. There’s no doubt he could have run faster.

What most people don’t know, Nike had previously agreed to pay Bolt a large bonus (up to $500,000 according to some sources) every time he broke a world record. He was given financial incentives not to run his fastest every race. He was better off making slow incremental progress and break the record as many times as possible, which in turn makes spectating the sport more exciting.

In this case, the incentives of Nike and Bolt were aligned. Hospitals, on the other hand, will almost certainly regret this strategy. The first year is a risk-free year, so hospitals should use it as an opportunity to test new programs and initiatives. Sadly, many are doing the opposite.

4. Hospitals should steer post-acute options.

Medicare regulations mandate that patients should have a choice of providers. When hospital representatives discuss post-acute care options with patients, the degree in which the hospital favors a certain provider is considered “steering.” Hospitals usually fall in one of three categories: 1) no steering, 2) soft steering, or 3) hard steering.

While hospital attorneys for years ran scared from any form of patient steering to specific post acute providers, the financial penalties for hospitals who work with sub-par post-acute providers is becoming way too significant.

If the fourth category was “extreme steering,” this is what Josh would recommend, assuming patients were being steered towards the facilities with the strongest quality measures. Simply put, Medicare rules need to be relaxed (or creatively reinterpreted) to give hospitals more say into where patients go for post-acute care, since hospitals are being forced to take on more risk.

Imagine a scenario where you just purchased a $700 iPhone at Apple (analogous to receiving a hip replacement at a hospital). You’re told by the store clerk that you should buy a case to protect your new phone, and you’re staring at a wall of 300 different phone cases from a dozen different manufacturers. At the very least, you as the consumer would appreciate it if they limited the options to one recommended case (Apple brand) and perhaps one other highly-rated case; or they should prominently display the ratings for all the cases on the outside packaging.

People deserve the right to choose, but they should be given ample information to make an informed decision. When it comes to healthcare, no one wants more than a few good options.

5. Hospitals that don’t steer will get steered anyways.

You can lead a horse to water, but you can’t make him drink.

At the Health Evolution Summit in Laguna Beach last month, as part of a fun group exercise, the healthcare executives at the conference voted “disruption” and “innovation” as the top two most hated buzzwords in the entire industry. What a shock — many hospital executives are stubborn and they like things the way they are.

The problem is, most hospitals are relying on post-acute strategies that are growing increasingly problematic every day. Instead of steering at the executive level, many hospitals are deferring the decision to the physician level. By allowing doctors to choose the patient’s discharge destination, patients are being referred to facilities when they could just as easily return home.

Josh calls this the “post-acute merry-go-round” because doctors claim that the overutilization of SNFs reduces liability. But in the age of criteria-based admissions and discharges, that argument doesn’t hold ground. The preferred post-acute partner network has to be established from the top-down.


The switch from a predominantly fee-for-service system to value-based reimbursement has turned the traditional model of healthcare reimbursement on its head, causing providers to change the way they bill for care. It’s driving real improvements to the delivery of care and mandating higher quality and better care coordination at a lower cost.

For systems that are efficiently managing care, these programs provide new revenue and cost savings opportunities. But to succeed under these reimbursement methodologies, health systems will require better access to information, higher adoption of technology, more narrow post-acute networks and more aggressive experimentation of new programs.

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