McKinsey on Healthcare
Increasing productivity in healthcare: An interview with Allen Karp of Horizon Blue Cross Blue Shield
08 Sep 2020
Chapter 1: What is the main topic discussed in this episode?
McKinsey on Healthcare, a podcast series about visionaries, leaders, and problem solvers shaping the future of healthcare. Good afternoon.
This is David Knott. I'm a senior partner in McKinsey's Healthcare Practice, and today it is my pleasure to have Alan Karp, Executive Vice President of Healthcare Management and Transformation at Horizon Blue Cross Blue Shield, join me for a conversation around productivity in healthcare. Alan, welcome, and thanks for joining us.
Thank you, David.
Alan, perhaps just to start, I think at the highest level we have seen the application of technology and other measures that improve the productivity of industries over time. I think one of the vexing challenges in healthcare is that we continue to throw a lot of technology at various problems and yet we see precious, if any, improvement in productivity over time.
And we all know that affordable quality is one of America's greatest challenges. Any top-of-mind observations on why this is such a vaccine problem so entrenched for healthcare?
Yes, and that's a great question, David. I will focus on two that I think drive the fact that our productivity in healthcare is not as great as some other industries. One is the economic model historically has been a fee-for-service system. based model where incentives are not aligned between payers and providers.
And there are significant administrative processes that are in play today as a payer interacts with a provider, and that causes inefficiencies. The other area would be within a health system, for example, the administrative and operational processes are cumbersome. and inefficient.
If you look at the healthcare industry, it is a very labor-intensive industry, which of course drives the cost up and creates some of this inefficiency. There was a study done by Johns Hopkins where they were looking at two areas of focus. One was the way they assigned beds to patients who came into the hospital, and the second was how quickly they can assign
beds to those who came through the emergency room. Utilizing AI and machine learning, they were able to reduce the amount of time it took to assign beds by 30%. And they were able to cut the wait time for those members who came in through the emergency room, or those patients, I should say, through the emergency room by 20%. So that one example of using technology
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Chapter 2: How does technology impact productivity in healthcare?
So we could teach the machine how to look for those. And then when a provider calls in for a pre-authorization, they would be able to get that pre-authorization on an automated basis. Now that allows our nurses to focus on those clinical conditions that are either in a gray area or not yet supported by the evidence and makes the whole process much more efficient.
Faster, less paperwork for physicians and hospitals.
perhaps would you be able to talk a little bit about steps that Horizon Blue Gospel Shield is taking where you're trying to move forward today to capture some of these improvements?
Sure. We have built relationships with our hospital systems and providers in New Jersey. We have about 4,500 primary care physicians that are under a value-based reimbursement system. So we pay them for their ability to provide more affordable costs for our members and also hit certain quality screens. It always starts with quality. We then give them the data
and analytics capability by providing insights to our providers so that they can take action for those areas that are creating higher cost for those services that are provided in the market, like radiology, for example, where there may be too much testing. Or another example would be where a patient can go to a freestanding outpatient center for care
and not only get a much more efficient and better experience, but also be able to reduce cost because of the cost structure and the processes that are in place in those outpatient centers.
It does sound like the direction is really trying to align the delivery system around evidence-based medicine, so these are clinically appropriate interventions, and the interventions themselves are happening in the appropriate set of care. and make sure that it's fit for purpose. When you think about some of the shifts inside of care, does that fit for purpose?
You mentioned the outpatient ambulatory infrastructure exists in as robust a form as is necessary, or do you see over coming years as perhaps a more defined set of services are provided in an inpatient setting? There's a real emphasis on expanding some of the capacity to accommodate more that can be done in an outpatient setting.
It's a journey, and it's a marathon, not a sprint, because what we're asking the providers to do is think about how they manage their patients in a different way. We have a significant number of primary care physicians under value-based,
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Chapter 3: What are the challenges of the fee-for-service model?
So I think the changes in the marketplace are driving health system CEOs and physician leaders to understand that they've got to make more investment in technology to be able to support the new models and the new way care will be delivered than building buildings or adding beds.
What I hear you saying is the shift towards value-based payment in the case of hospitals, the global budget, allows them to think more about the continuum of care and then right care, right place, right time across that continuum. And then by aligning the care in that way, they're able to make mission-sustaining margins and be able to continue to invest.
That's exactly right. I think historically hospitals have been focused, as have physicians, on revenue.
not necessarily margin and the cost for a provider in a value-based model and the margins they can make in that model if they perform is substantially higher than in a clinical model because you don't have to hire more people i said earlier that labor is the biggest cost within the healthcare delivery system You don't have to fill more beds. You don't have to build more buildings.
So you don't have to generate as much clinical revenue to drive the same or better margins than you're doing today. I think that learning is beginning to catch on.
But as your point of view around the future models in health care, on the delivery system side, does the system get optimized through vertically integrated systems? delivery systems that go the complete continuum of care and can move patients appropriately across that continuum?
Or do you see mixed models where the health systems, as an example, would own some portion of that continuum and then other entities maybe aggregate physician supply and provide the enabling technology and then provide more of the integration coordination of them.
What I see health systems doing is not employing physicians, but recruiting physicians into their clinically integrated networks where they're managing the relationships with the payers, the contract, providing the services that a small physician office can't do on their own. They can't afford it. And there are aggregators in the market that are aggregating groups of physicians.
The medical home model, where they have large enough contingents of primary care physicians. And I'm starting to see specialists beginning to be organizing the model as well. So if I put my health system hat on, I want to make sure that I have enough physician capacity to
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Chapter 4: How can AI improve operational efficiency in healthcare?
We've seen tremendous results. We've seen reduction in re-emission rates. We've seen reduction in patient utilization, reduction in emergency room utilization. We have been in a position the last several years where we have been able to
create significant savings that allow us to pay out a portion of that savings back to our health system and physician partners, which is always positive because they begin to believe that this model actually works. So on the clinical side, we've seen very good results in terms of improving gaps in care. and some of the other operational quality measures that we typically look at.
Overall, the relationship with the health systems and the physicians have given us a major advantage because we're now beginning to speak the same language and focus on the same thing.
This has been rolled out in the employer-sponsored market. What kind of reception have you received from this? How much do employers like it? What kind of questions do they have as they see these new propositions in the market?
So we've had a lot of success in not only the employer market, but in the individual market and the small group employer market in particular. We've been able to take a product built around the health alliance, and the other value-based providers. And the first year, we were expecting around 250,000 members. We got 275. Now we're up to 450,000.
So clearly the market has told us that this is a product that they value. Our price points have been very competitive as we go upmarket. It took a couple of years for those employers to see the value, but they are now seeing that value and we are growing. our business in those markets for this particular product.
So we're able to take these relationships that we have built with the provider community and explain in detail how they're working and why we believe we'll continue to be able to control costs and improve quality and service as we go forward.
Having those relationships in place for a number of years, we could have very focused conversations with employers about the advantages that we bring to the marketplace.
administrative expense intensive is this new model compared to the old way of providing broader PPO type networks?
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Chapter 5: What steps are being taken to align incentives in healthcare?
We did a pilot in Newark with Robert Wood Johnson Barnabas Health around one of their hospitals, North Beth Israel. We looked at four zip codes in that area where the expense was extremely high relative to what we normally see. And the age cohorts were much younger, between 35 and 50.
We found that the root cause of the problem was that many of them were using the emergency room as their primary care office as opposed to being tied into the delivery system. They did not know what their conditions were, so many of them had comorbidities, had behavioral health issues. And so we employed a model called the University of Pennsylvania Impact Model.
It's a model that engages community health workers, who are people who actually live in those communities, who are not health care professionals necessarily, but know these people. And that's the key. It's one thing to identify them. It's another thing to actually get in the door to be able to make an impact on their lives. And so we hire these people. We train these people.
The other benefit was we were fully employing some people that may have not been employed, but we put them through training. We then hired a person called a personal care assistant, which was a nurse, generally,
or a care manager who was doing additional work with those members directly to try to help them navigate through a very complex healthcare system and was providing oversight to the community health workers. The bottom line was that our engagement rate was 45 plus percent, which if you look at the statistics is significantly higher. We identified a thousand members that we can reach.
We ended up reaching out to 450. We found interesting reasons for why their costs were so high. So, for example, there's a single mom with a couple of kids who has multiple comorbidities taking care of an elderly parent. doesn't have a primary care physician because they can't find one that they trust, also has depression, undiagnosed.
We were able to intervene, connect this person to a primary care physician in the delivery system, connect them to a behavioral health professional. We tracked that person after six months.
and found that they had no emergency room visits they were not hospitalized their condition was much better in terms of their health status and that was a that was a tremendous win for us we had a 20 reduction in our emergency room cost and a 25 reduction in inpatient visits and a significant reduction in readmissions.
That's really impressive. And when you think about the insights here, primarily the examples you gave here were underserved segments, fragile populations. Do you see this having relevance as well in other markets, commercial market, employer-sponsored, individual exchange?
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