Print BCTV: ACOs -- Ex-CMS boss Scully, Geisinger's Steele debate ACOs,fee-for-service


Transcript of BioCentury This Week TV Episode 174



Glenn Steele, Jr., president and CEO, Geisinger Health Systems

Thomas Scully, general partner, Welsh Carson Anderson & Stowe




Centers for Medicare and Medicaid

Kaiser Permanente

Capital Blue Cross

Northeast Blue Cross


Geisinger ProvenCare

HealthCare Partners Medical Group

Heritage Healthcare Inc.

Lovelace Health System

Mayo Clinic



Erin McCallister, Senior Editor




ERIN MCCALLISTER: ACOs -- innovative patient care or repackaged HMOs? We'll hear from both a pioneer and a skeptic of this emerging model for healthcare delivery. I'm ERIN McCallister. Welcome to BioCentury This Week.


NARRATOR: Your trusted source for biotechnology information and analysis. BioCentury This Week.


ERIN MCCALLISTER: Accountable care organizations are intended to do away with expensive fee-for-service healthcare in the US. ACOs use a pay for performance model by tying physician payments to patient outcomes. ACOs are graded across a set of metrics, like reductions in blood sugar for diabetics or reductions in hospitalizations. Healthcare groups that improve their scores above a target threshold receive a larger payment than groups with a lower score.


The Affordable Care Act created incentives to increase ACOs for the Medicare population. And more than 100 have been created to do just that. But some healthcare providers have already adopted the ACO approach for their entire business. Geisinger Health in Pennsylvania is one of these pioneers, and has been recognized for its accomplishments by President Obama.


BARACK OBAMA: We have long known that some places, like the Intermountain Healthcare in Utah or the Geisinger Health system in rural Pennsylvania offer high quality care at cost below average.


ERIN MCCALLISTER: But critics say ACOs are nothing more than repackaged managed care, and won't actually do enough to control costs. Today we'll talk about the pros and cons of ACOs and what they mean for patients. We'll hear from a critic, Thomas Scully, who headed Medicare during the Bush administration.


But first, I'm joined by Dr. Glenn Steele, president and CEO of Geisinger Health. Dr. Steele, I want to start off by asking you to just give an overview of what is this Geisinger model that we hear so much about.


GLENN STEELE: Erin, it's good to be with you. Geisinger is a combination of an insurance company and a provider company. So we've got hospital care. We've got primary care. We've got after-hospital care.


We have specialists. We have family docs. We're spread over 41 counties in rural and post-industrial Pennsylvania. And we also have, for 50% of our business we have our own insurance company. So it's perfectly vertically integrated, if you're thinking about insurance and providers working together to try to really give the most value-based care.


ERIN MCCALLISTER: And so how does Geisinger -- the traditional model has been fee for service. What is Geisinger doing, and what have they done to do away with or change the model of fee-for-service in terms of this more performance-based system?


GLENN STEELE: Well, for our Medicare HMO and now for Medicaid managed care, since there is no more Medicaid fee-for-service for our commercial HMO business, we're essentially looking at being responsible for a population of about three million patients. And if on the insurance side, we take better care of them and keep them from needing to be hospitalized, the total cost of care goes down. And what we can do is, we can incent on the provider side for doing the kinds of things that move away from volume, move away from unnecessary tests, kind of extract that 30% to 35% of stuff that basically doesn't do any good for the human beings.


And we don't have to negotiate for that from another insurance company. It's within our fiduciary. So what's good for the patients, which translates to the decreased total cost of care, remains within our system and can be redistributed to a lot of the docs who are causing that value increase.


ERIN MCCALLISTER: You mentioned that you're not only a hospital and a healthcare system. You're also an insurance provider. How critical is that it to the success of the Geisinger model?


GLENN STEELE: It's absolutely critical. We're not like Kaiser Permanente. We're much more heterogeneous. We have lots of non-employed, non-Geisinger docs taking care of our patients. We also have about 50% of our payer, non-Geisinger.


So it's Capital Blue Cross, Northeast Blue Cross, Highmark. So we're kind of hedged. So we get the old fee-for-service from the 50% of non-Geisinger, but we're essentially capitated for a population for the 50% where we're not only caring for patients, but we're insuring them. It gives us a huge advantage.


ERIN MCCALLISTER: And one of the things that Geisinger has done within its system is this ProvenCare model. Can you tell us a little bit about what that is? Explain what you've seen there.


GLENN STEELE: I think most people now understand that a huge amount of what we pay for or what is cost in healthcare delivery doesn't bring benefit to the people that we serve, either on the insurance side or the provider side. The real question is, how do you extract that in your routine caregiving?


And one of the things we've been able to attack, both by having the insurance leadership as well as the caregiving leadership working together is unjustified variation. If you're in a hospital setting and you go to a recovery room after a patient's had a hip replacement, and you ask the nurse who's taking care of the patient, what is the technique for preventing blood clots going to the lung?


If that nurse says, let me find out who the doctor is, you know straight away from that answer that there's unjustified variation. So what we've tried to do is, we've tried to create a default best practice for all of the high volume things we do, and extract as much of that unjustified variation, which makes up a huge amount of that, 30% to 35% of cost without benefit.


ERIN MCCALLISTER: And part of ProvenCare is sort of this warranty, where after so many days, any complications. Can you just say a little bit about that?


GLENN STEELE: The key thing was the re-engineering and trying to get the default best practice, allowing individual variation when necessary, but not just seat-of-the-pants medicine. But the sexy packaging, which you're referring to, is really the single price. And the price includes everything -- hospital care, doctors' fees, tests. But it also includes us taking care of any complications that would occur free, for up to 90 days.


ERIN MCCALLISTER: Great. Next, we'll talk with Dr. Steele about what ACOs mean for access to drugs. But here's a look at how Geisinger has improved outcomes with its ProvenCare program for elective coronary artery bypass graft.




NARRATOR: You're watching BioCentury This Week.




ERIN MCCALLISTER: We're with Glenn Steele, President and CEO of Geisinger Health talking about the pros and the cons of Accountable Care Organizations.  Dr. Steele, one of the things that you know we've talked a lot about what happens when the patients in the hospital in the system like Geisinger but when they are not in the hospital a lot of patients take prescription drugs that are filled through the pharmacy. Where do drugs fit in the model?


STEELE: You know it's an absolutely critical part of why chronic disease is not managed optimally. Our average patient is 75 has five chronic diseases and takes over 20 meds a day. So you can understand if that is not managed perfectly the ability to keep them out of the hospital keep them in good shape is incredibly compromised. So a huge amount of what we do is focused on appropriate drug adherence making sure that we understand whether you know patients know what drugs they should take. I mean moving from non-generic to generics is a simple thing but there is a huge amount that has to do - and it's a reasonable tradeoff I mean if we have more expense for appropriate use of drugs it saves on the hospitalization per thousand of the re-hospitalization it's a very easy tradeoff.


ERIN MCCALLISTER: And so in terms of you know if we see more of these ACOs and models like Geisinger evolving and growing is it possible or is it foreseeable we could see growth in the prescription drug use in cases where it does help to bring the total medical cost in healthcare down?


STEELE: Sure. I mean I can give you two examples. If we look at anemia chronic renal disease and the use of a very effective but very expensive biological - erythropoietin Epo - what we have found in looking at our entire population of folks with that problem is that 20-25% of the folks didn't need the Epo they could be treated with iron.  Now iron is a fraction of the cost of Epo so right there you are saving a huge amount plus guess what? Epo has complications that iron doesn't have. So it's that kind of an extraordinarily systematic way of looking at best practice and applying it to your population that is one great example of decreasing cost and increasing the quality of the outcome.


ERIN MCCALLISTER:  And in terms of on the drug side is does Geisinger take into account when it's evaluating drugs on its formulary whether it's in hospital formulary or it's outpatient formulary this notion of the medical cost and how it does reduce total cost -- is that fully integrated when it's trying to use what drugs to cover what drugs not to cover?


STEELE: Yeah, it takes that into account obviously. But you know that's another example which is much more close to the core issue.  Even when -- we have 26,000 employees I mean you know it's a big system and we insure them obviously so lots of those 26,000 since our demography is older and sicker than most other places outside of the Deep South a lot of those folks have chronic disease, including me. And we've actually established a system where we give the drugs away free and we find out within a very short period of time when you give away the drugs free and you make sure that the people with the chronic diseases are taking the appropriate drugs you save a huge amount so it's about a 1.7 return on investment over a couple of years simply because you're decreasing the problems that they have for inadequately treated chronic disease you're decreasing the hospitalization so it's an easy tradeoff.


ERIN MCCALLISTER: Thanks, Dr. Steele. Next, we'll be joined by former CMS Administrator Thomas Scully to discuss his take on ACOs. But first here are the first-year results from the Medicare's Pioneer ACO program created under the Affordable Care Act.




ERIN MCCALLISTER: We're back with Dr. Glenn Steele of Geisinger Health.  And we've been joined by Thomas Scully former head of Medicare and now General Partner at the private equity firm Welsh Carson Anderson & Stowe.  Tom, I'd like to start with you. We saw some numbers here just there for the Medicare Pioneer program -- it seems to be saving some money in terms of on the ACO side but what are some of the shortcomings still of ACO's.


Scully: I'm not a huge critic of the ACO. I think ACOs are marginally better than fee for service. It's a perfectly good development. There is nothing really new about it. Healthcare Partners which is the dominant physician practice group in Southern California, Heritage also in Southern California they've been doing this for 20 years. So there is no -- the concept of getting doctors involved and risk and understanding the cost of healthcare system is great and Geisinger on the margins is better than fee for service. But in the long run the real answer is full capitation what Geisinger does on the HMO side what Pennsylvania has figured out in Medicaid. There is no more fee-for-service in Pennsylvania. They say that Geisinger here is $14,000 a year call us next year.  When you have the entire system at risk you get much better care and the problem with ACOs in my opinion is two-fold: one, is it's you know the doctors have some risk it's kind of hard to measure as Dr. Steele has already said, you know it's kind of a moving target it's a flawed system it's better than nothing but it's still a flawed system.


And the second thing is the intention of ACOs to begin with is to get physicians involved and understand the costs of the risks to see their patients more often to talk to them about their meds to keep them out of the hospital. What's happened unfortunately because of the ACO development is that people that have the cash to do it are hospitals. So increasingly the ACOs -- Geisinger is a little different -- have been largely done around the country by hospitals and it's driven a huge amount of doctor-hospital consolidation. So ten years ago 30% of the docs in the country worked for a hospital now it's 60% in ten years. So what has happened is that the docs are owned by the hospitals - guess what? They try to fill the hospital beds. The goal of ACOs and the goal of getting physicians involved was to educate them see the patients more give them better primary care and the biggest cost in the system is hospitalization keep people out of hospitals. So everything is with all the best intentions. What the Administration is doing is marginally good for the better but the overall global impact people have to look at and I think it's caused a lot of hospital consolidation a lot of docs to panic and sell to hospitals and I'm not sure in the long run that we should certainly be talking about it at a minimum.


ERIN MCCALLISTER: In terms of Geisinger you know they've done some consolidation as well but they are not the ACO in this model that we've talked about a little bit that we've mentioned just now they are a little bit different than the ACO. What's your response on the consolidation?


STEELE: Well you know consolidation between insurance company and provider is where we live I mean that is what Geisinger is. If you've got a high market share on both the payer side and the provider side it makes attorneys in general pretty nervous.  But if you're paying for total cost of care for a population and if you are able to compete based on creating a business model that decreases total cost of care that's a functional outcome that we should all be hoping for.  So I think you know I think that the more vertical integration the better as long as we are paying for population risk. That is a part of that. That is move away from fee for service. So I agree completely with Tom the good thing about ACOs is it's a move away from fee for service. The bad thing is that it probably doesn't go far enough.


ERIN MCCALLISTER: And in terms of not going far enough - one of the other programs out there I think you talked about before is Medicare Advantage.  What that does versus what the ACO model does -- can you talk a little about that?


SCULLY:  I love Advantage. So when I took over HICFA as it was called in 2001 we had 3% of people in the Medicare Plus Choice program as it was called back then it was falling apart and everyone was getting out of it.  So one of my major goals back then we passed the law to change it to Medicare Advantage was to enhance that program and now it's 30% and Geisinger is a big player. And I think that is the better way to go.  To say to a Geisinger look here is the whole cost of the senior's care we're giving you $14,000 if you spend $15,000 you'll lose if you spend $13,000 you win.


Assuming they are well regulated and they have a reasonable margin you're going to get much better results out of that than the fee-for-service system. So I think we totally agree on that. My concern is not about -- especially in a rural area -- what Geisinger is doing you're only going to have one hospital in each of these towns and what Geisinger is doing is great. I'm on the board of the Dartmouth Medical System in New Hampshire and it is similar. But in a lot of other places I worry about too much hospital consolidation.  When you get to Washington, D.C. when you've got every hospital in Northern Virginia as part of one system. So from Fredericksburg, Virginia to D.C. one system owns everything and they own all the docs and I think that is a little scary.  And in a rural market it's different, every market is different.  I'm worried that the ACO stuff is driving too much power in the hands of the hospitals and taking it out of the hands of the doctors. Which is not a problem at Geisinger.


ERIN MCCALLISTER: Dr. Steele, as he mentioned, you know a lot of doctors are employed by hospitals now. Do you see that as a risk at Geisinger? Or does it work for Geisinger where it might not work in other --


DR. GLENN STEELE: No, it's not a risk at Geisinger because we're doctor-led. We have been for 100 years. And we are planning on taking out 20% to 25% percent of the acute-care hospital beds. So our ducks are not there to feed the hospital volume. Whether that applies to a lot of other hospital-centrics that are buying docs, I'm skeptical.


ERIN MCCALLISTER: And in terms of these other hospitals, we have the traditional community hospitals and things like that, but we also have research hospitals, huge institutions that have been built over just the last few years. What about ACO? What works for them? Will that system ever change? Or does it need to?


THOMAS SCULLY: Oh, well, it definitely needs to. Every market's different. So if you look at a Geisinger, my firm is -- we own the Lovelace system in Albuquerque, which is also vertically integrated. So if you have the insurance company and the docs and the hospitals all together, it makes sense, which is Geisinger's model.


But if you're in a situation with your insurance company, and you're looking at five hospitals in a market -- Philadelphia, which is an over-hospitalized market, for example -- and you go in there and you have a bunch of different hospitals and you're trying to get them to be more efficient, and all of a sudden, they're buying up all the docs, that's not a good thing. So every market's different. And most markets are not integrated like Geisinger or like Lovelace, or like Mayo. They just don't work that way. I wish they did. That would be a great thing.


Most markets still have the hospitals. Out there trying to figure out how to fill more hospital beds, and they buy up the doctors. I think that's a little bit of a dangerous thing. So, again, every market's different. You know, teaching hospitals -- look, we don't have enough docs. We need to produce more. So I don't think you want to squeeze the teaching hospitals to train fewer docs.


On the other hand, they're incredibly expensive. So you know, I remember when -- I love Pittsburgh -- but I was at CMS, the Secretary of the Treasury was from Pittsburgh. And he used that as a model. And I would say, you know what, I love Pittsburgh, but it's got the highest cost of any city in the country per capita, because you've got so many teaching hospitals. So you've got to find the balance some places.


We need a lot of teaching hospitals, but you can't just keep plowing costs into them. They're very inefficient in many ways.


ERIN MCCALLISTER: OK. And in terms of the Geisinger model, do you see exporting that model to other places?


DR. GLENN STEELE: We do. We do. And part of that exporting is just a normal consolidating market, moving into Harrisburg, moving into New Jersey, doing partnering arrangements with non-Geisinger providers that are select providers in Maine, New Jersey, Delaware. Part of it is establishing this new entity that we call xG and going into actually some medical school-based academic medical centers, like University of Rochester, like University of West Virginia, and seeing whether we can actually produce a value proposition.


ERIN MCCALLISTER: So how long will it take to find out if ACOs truly are the future of healthcare? We'll ask Tom and Glenn when we return.


NARRATOR: Next week, BioCentury's Profiles and Innovation. Immunotherapy: teaching our bodies to fight cancer.


DR. STEVE ROSENBERG: Well, adoptive immunotherapy has had a major impact about thinking about the immune system and cancer, because it shows that if you give the correct T-cell, that's capable of recognizing a cancer, in large enough numbers, with enough supporting materials -- Interleukin 2, that can keep those cells alive in the body -- you can mediate regression of a variety of cancers.




ERIN MCCALLISTER: Are ACO's the future of healthcare? We are talking with Glenn Steele of Geisinger Health and Thomas Scully of Alston & Bird.  Dr. Steele I want to start with you. Will we see more Geisingers emerge over the next few years you know?


STEELE: I think we will have more integrated systems.  Small-group practices are probably going to become larger. I think there will be more vertical integration between payers and providers.  Will Geisinger be the single template? Absolutely not. I think there will be numerous templates. But there will be more Geisingers.


ERIN MCCALLISTER: And in terms of this vertical integration that we have been talking about. So does that mean we are going to start to see payers by hospitals you know how do you get that vertical integration otherwise?


SCULLY: I think you'll get a lot more vertical integration. I think the key to me is I love hospitals I love insurance companies -- the key is doctors. Doctors take care of patients. Not hospitals not insurance companies and the whole idea of ACO's what you're trying to do is that the doctors have risk to look at the overall cost is that their performance has an economic basis and what happens to the patients and the outcomes. And that's really what we are trying to do and we both agree that the best way to do that is an overall comprehensive HMO capitated model. The ACO's are moving in the right direction but there is a lot of little perversions on the sides including hospitals owning too many of them. You know it's definitely moving that direction. Geisinger is a great model. It's not going to be the same model every place.


ERIN MCCALLISTER: But one of the big criticisms about HMOs back you know several years ago was that they didn't enroll or they tried to exclude high-risk patients. Has that been dealt with? How does that? How? why not anymore?


SCULLY: It's the opposite. And something I'm a little proud of because I was involved. You know I was on the board of Oxford Health Plans the big HMO in New York health in the 90s and the joke used to be that HMOs would put their enrollment offices in the 30th floor of a walkup to avoid sick people. Well the 2003 bill that created Medicare Advantage we reversed that put in something called risk adjusters so now all the plans measure if you're a 65 year-old marathoner you are probably getting $5,000 a year from the government if you're an 89 year old cancer patient you may get $35,000 so now the insurance companies including Geisinger are dying to find the sick people because they do better by managing their costs and the incentives have been absolutely reversed. So I think almost nobody is interested anymore in avoiding sick people. They want to find them and manage them which is exactly what they should be doing.


STEELE: Exactly.


ERIN MCCALLISTER: And in terms of this vertical integration and more of it but you mentioned that not -- the Geisinger model isn't right for everyone and we won't see it for everyone. Are there other emerging models out there that we should be looking at? What are the next Geisingers?


STEELE: Well you know I think expansion of Medicare HMO that has gone against the grain over the last few years and it's because I believe Medicare recipients now understand that there is value in that. And I think as you get preferred networks -- that is smaller networks that are more capable of delivering value -- the choice for consumers whether they are Medicare or non-Medicare is going to be over a system. Are you going to choose a system? It may not be a choice of just a doctor anymore.  So I think there are many ways of getting to that kind of a functional structure not just Geisinger.


ERIN MCCALLISTER: OK, we just have a few more seconds. Tom, will fee-for-service go away? In ten years will it just be --


SCULLY:  Not in ten years - 30 years. People will age out of it. Younger people - I'm 56 - people my age as they hit 65 and go on Medicare - Medicare Advantage is cheaper it's a better deal. You are going to find a pretty quick evolution of a much bigger population of private health plans but I think it's 30 years away from getting rid of fee for service.


ERIN MCCALLISTER: Real quick do you think how long before fee-for-service is gone?


STEELE: I think Medicare fee-for-service will be gone in five years and I think it won't be a politician announcing it I think they'll be paying so little for each unit of work that it will be unsustainable.


SCULLY: I hope you're right.


ERIN MCCALLISTER: OK, great. Well that is this week's show. I'd like to thank my guests Glenn Steele and Thomas Scully. Remember, to share your thoughts about today's show on Twitter. Join the conversation by using the hashtag #BioCenturyTV. For Steve Usdin, I'm Erin McCallister. Thanks for the watching.