Destination clinical services, such as treatment for brain tumors and solid organ and bone marrow transplantation, are low-incidence events. As governmental and commercial payers continue to set volume and outcome standards for Centers of Excellence in these types of complex cases, only a limited number of destination referral centers will be able to reach adequate patient volumes (as exemplified by the heart transplant volume standard of a minimum of 10 cases per year as set by the Centers for Medicare and Medicaid Services). UK’s target population base of five to seven million can support a destination referral facility, but this reach infringes on other academic referral centers. Anticipating competition from other AMCs, UK leaders understand that UK must continue to focus on and invest in these destination services.
Challenges for the Future
The U.S. health care system is at an inflection point. The underlying expectation is that, in response to health care reform, a greater emphasis will be on preventive care and most notably a focus on population health. In turn, care will be more efficient as providers take responsibility for a population of patients across the continuum of care. However, different populations often require different systems of care.
Nationally, 5% of the populace consumes nearly 50% of all health care resources,8,9 and there will continue to be very sick patients requiring highly specialized and expensive care. Referral-type AMCs have been designed to address this specific community of patients. UK and other AMCs have made considerable investments in specialized services to adequately meet the needs of these patients with complex illnesses. These services require a sufficient volume of patients with relatively uncommon conditions for AMCs to be able to retain and support specialized staff, optimize the use of the costly capital investments, and remain financially viable. Further, multidisciplinary teams must see sufficient numbers of patients for team members to maintain their skills. We therefore pose these questions: In an era of dynamic health care system change, what strategies should a referral-type AMC pursue to sustain its specialized services? How does an AMC with the goal of becoming a regional referral center build and sustain a patient base that can supply sufficient numbers of destination patients?
Some AMCs have responded by developing accountable care organizations (ACOs)10; others may either develop an insurance product or partner with insurers to offer insurance products; and still others, such as UK, are pursuing an incremental approach to develop broad-based networks based on mutually beneficial partnerships, and then allowing these networks to mature and evolve.
ACOs are in vogue. We believe that these organizations may have limited utility for AMCs. Many AMCs have made enormous investments to be able to provide care for patients with complex conditions—a vital community resource. Maximizing the use of these expensive infrastructures will reduce the total cost of a complex episode of care regardless of payment methodology. Some ACOs developed by AMCs involve a modest number of individuals, which will generate a limited number of cases requiring destination services. For example, if the population base is a potentially healthy group (e.g., university faculty, staff, and students), most of the admissions will be of low acuity and may crowd out referrals for destination services. Some institutions are contemplating building substantially larger ACOs involving populations in the hundreds of thousands and even millions. AMCs trying to replicate broad, comprehensive systems to serve a large general population, like the Kaiser model, will require considerable time and huge outlays of capital to build appropriate infrastructure. Alternatively, UK’s approach is to emphasize UK HealthCare as the tertiary, quaternary referral center serving multiple ACOs established by local providers, all of which have, primarily, a community focus.
Some AMC leaders are considering developing an AMC-affiliated or -run insurance plan. Developing the necessary infrastructure and scale to mitigate any risk resulting from random variation is resource intensive. Adverse selection is also a serious concern,11 and if premiums are not sufficiently risk adjusted, the financial burden can be substantial for the AMC. The need for adequate reserves for an insurance product may also be a barrier for some AMCs.
We believe that it is more practical to partner with one or more insurance companies in restricted networks to provide destination services to their enrollees. A natural division of labor occurs: The organizational and infrastructure costs associated with the insurance product, as well as the risk for the aggregate population, reside with the insurer, while the AMC provides clinical care. The AMC and insurance company can potentially share the benefits of medical management of complex patients, or the AMC can accept limited risk. AMCs with existing referral patterns and relationships with other providers can help insurers structure appropriate geographic, cost-effective networks by recruiting organizations with which they have experience.
As UK has executed this strategy, insurance companies now recognize the importance of UK HealthCare in the market. Additionally, insurance companies are now increasing their interest in carve-outs, specialty care networks, and targeted disease management approaches. UK is also interested in working with insurance companies in developing restricted panels, but to date that has not been a significant component of the marketplace.
UK has also engaged with large, self-insured purchasers (i.e., patients) to discuss serving as a multistate Center of Excellence in specialized areas of care. UK can offer these purchasers a higher degree of service and coordination by developing concierge services and guaranteed, appropriate communication among providers. By optimizing efficiency in managing complex episodes of care, UK is also the prudent economic choice.
Many leaders of referral-type AMCs fear they will be excluded or denied access to their traditional referral base as the market consolidates and tiered- or narrow-network insurance products emerge. UK HealthCare has attempted to mitigate this risk by nurturing its referral base and quantifiably demonstrating the value of its services in terms of quality, access, outcomes, and costs. Integrated health systems and referral networks will need to excel at rationalizing the site of care and eliminating unnecessary variation and waste. We believe that improving the efficiency in the care of complex, expensive episodes is the most important issue affecting the affordability of health care. Regardless of the ultimate market forces, AMCs that can provide the highest-quality, safest, and most efficient care for complex episodes will not only survive but thrive.
At the present time, UK’s approach has been incremental and built on existing and targeted provider relationships. From 2003 to 2010, UK’s provider relationships were focused predominantly in Eastern Kentucky. Initially, affiliate relationships were with small rural providers. Clinical leaders worked to earn credibility and a reputation for partnering in a cooperative and collaborative manner, bringing some of the larger providers in Eastern Kentucky into service-line-oriented networks. During this time, UK leaders also worked to develop outreach clinics for UK specialists to travel to partnering organizations while also helping these partners recruit providers in primary care. The goal was to make the larger hospitals subreferral centers that would treat appropriate acuity patients locally and that would aggregate referrals of complex patients to UK.
To continue to grow its regional population base, UK has also worked to develop relationships in Louisville, Western Kentucky, West Virginia, Southern Ohio, and Eastern Tennessee and has strategically identified the most appropriate collaborators in these regions. These targeted partners are predominantly of substantial size and can function as subregional hubs to aggregate complex patients for UK over a large population base (Figure 4). In this arrangement, care as appropriate remains local; thus, the regional partners can continue to grow their patient volume and easily refer patients to UK’s subspecialty services as needed.
Some of the larger provider partners also have an interest in participating in clinical trials, particularly in cancer, which is possible through the UK partnership. UK additionally offers partners the opportunity to participate in medical student training. UK leaders hope to develop family medicine residencies, pharmacy residencies, and/or other clinical training programs at facilities whose leaders and clinicians are interested. These increased training sites support the development of primary care providers at local levels while allowing UK’s tertiary hospital to focus on training specialty providers.
UK has also helped identify primary care, specialty, and subspecialty trainees who are from the communities in which UK has developed collaborative relationships and who would like to return to their home regions to practice. In this way, UK facilitates the capacity of regional hospitals as they replenish their medical staff with individuals who understand UK’s clinical programs and clinical capabilities, as well as the local culture or community.
To date, UK’s relationships with partner provider organizations have been contractual but have not included financially integrated arrangements such as joint ventures, mergers, or acquisitions. UK leaders are receptive to the idea of merging with or acquiring organizations should greater consolidation become necessary. The hope is that if consolidation occurs, it would be a logical outgrowth of long-term relationships, minimizing the suspicions, stress, and cultural challenges that often occur with mergers or acquisitions. UK leaders keep partnering provider organizations knowledgeable as to the concomitant relationships it develops, assuring them that the partnering strategies are designed to help them (the partners) protect their current patient base as UK develops and broadens its patient base for destination services. That is, UK does not simultaneously court head-to-head competitors. The institution has also emphasized to partners that through its aggregate relationships it could develop, if necessary, a broad regional network.
One of the most important insights has been the immense need for capital. Initial estimates indicated the need to raise and spend $800 million over a decade. In reality, from 2004 to 2012 UK invested $1.4 billion in facilities, recruitment, program development, systems, and equipment. As UK leaders look forward to maintaining the aspirations set for the institution, they estimate that in the next eight years, UK will have to spend an additional $1.0 billion to sustain and enhance its gains. Transforming UK into a major referral AMC and enhancing its research capabilities will have thus required more than a $2.5 billion investment over a 20-year period. Whatever goals AMCs set for themselves, they should have a clear understanding of the financial resources required to reach them.
AMCs will unquestionably have to change in response to an evolving health care system.12–15 We suspect that AMCs will attempt a variety of different strategies and tactics and that these will be creative and adaptive. It will be essential that each AMC actively chooses the type of institution it aspires to be and that each understand the resource requirements necessary to achieve those aspirations. If an AMC is, for example, a local provider, it needs to understand how it will attract and maintain its patient base. The market and community needs vary by region and setting (e.g., rural versus urban), and specific elements of the strategy may vary as well. If an AMC aspires to be a regional provider of destination services, it must understand (1) whether there is a sufficient market space for it, (2) the extreme capital needs required, (3) and the competition. UK has become the referral center for a large geographic region in a rural state and beyond. Its strategy has focused on developing mutually beneficial relationships with community providers. Although most AMCs are not-for-profit public good entities, they are simultaneously participants in an industry driven by competition in quality and cost. Like in any such industry, scale and capital access are paramount. The sooner AMCs understand how they fit and compete in their market, the better they will adapt and thrive.
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© 2014 by the Association of American Medical Colleges
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