Podcast #144 – CEO Dean Gruner, MD, Lean & Accountable Care Organizations (ACOs) at ThedaCare


Episode #144 is a discussion with Dean Gruner, MD, the president & CEO of ThedaCare, talking about Accountable Care Organizations  (ACOs) and how ThedaCare is using this approach, along with Lean methods, to improve the coordination of care for patients. Dean was  previously a guest in episode 119, talking about the “strategy deployment” methodology.

Dean will be presenting at the upcoming Lean Healthcare Transformation Summit, June 6-7, 2012 in Minneapolis. I hope to see you there! I'll be attending and moderating the CEO panel again this year.

For a link to this episode, refer people to  www.leanblog.org/144.

For earlier episodes, visit the main Podcast page, which includes information on how to subscribe via RSS or via Apple Podcasts.


Mark Graban: Hi, this is Mark Graban. Welcome to the podcast, episode 144 for April 16th, 2012. My guest today is Dr. Dean Gruner. He is the CEO of ThedaCare. He was previously a guest on episode 119 talking about “strategy deployment” as part of their management system at ThedaCare.

Today, we're going to be talking about ACOs or Accountable Care Organizations and how that fits in with a Lean perspective at ThedaCare, related to healthcare reform happening here in the United States. Dr. Gruner is going to be presenting at the “Lean Healthcare Transformation Summit,” June 6th and 7th in Minneapolis.

This is an event that's co-sponsored by the Lean Enterprise Institute and the ThedaCare Center for healthcare Improvement. I'll be there. I'll be attending. I'm going to be moderating the CEO panel again this year. I certainly hope to see you there. It's a great event, wonderful speakers from the healthcare value network organizations, just a lot of great attendees, networking, learning and sharing.

You can visit leanblog.org/healthcaresummit and that will forward you to the official conference website to learn more and to register. For other episodes, you can go to leanpodcast.org and for Dr. Gruner's previous episode, go to leanblog.org/119.

Thanks for listening.


Mark Graban: Dean, it's a pleasure to talk to you again. Thanks for joining us here on the podcast.

Dr. Dean Gruner: Thanks, Mark, for inviting me.

Mark: I think a lot of our listeners, especially those outside of healthcare and maybe even some within healthcare might not know a lot about ACOs or “Accountable Care Organizations.” Would you mind giving us a little bit of an intro about what an ACO is?

Dr. Gruner: I'll try. I think the short version is that, there are multiple definitions out there. Everybody has a little different description of what an ACO is. I think of it as a mechanism for a group of providers, whether it's a group of physicians, physicians at hospitals, hospitals or healthcare systems, to be accountable for both the quality and the cost of the care that they are providing to a group of patients.

An example today that people might be familiar with is Kaiser. Kaiser provides the premium in their case, but they only provide premium for their health insurance, but then they become accountable for providing all the services that that person would need under the Kaiser umbrella. All ACOs aren't just models like Kaiser, which is what we would call a staff model HMO.

There may be groups of physicians in hospitals and other care providers that come together, again, for the purpose of providing the services to patients and assuming some degree of accountability for both the quality of the care that's provided and the cost of the care that's provided.

Mark: Part of the idea, if we look at this from a Lean perspective, when you talk about improving quality and cost which, people familiar or experienced with Lean would realize it's possible to do both.

Where do these improvements come from? Is it a matter of better coordination between hospital care or primary care.? How do people in different organizations collaborate in an ACO? What are the types of benefits that we're expecting to see?

Dr. Gruner: Let's back up and start with the big picture of how healthcare is paid for or financed. There's a general agreement, which I agree with, that the way we pay for healthcare services today on a fee-for-service basis is one of the root causes to our current low-quality high-cost system.

The way it works, and for people who aren't in healthcare may not spend a lot of time thinking about this. Every time you go someplace for every service that's provided, you are billed for that service by in large. The system that creates is one where the more you do, the more you get paid.

In fact, even to the point where sometimes, the more you do, even if there are complications, you get paid a second bill. Somebody comes in and has their first event or surgery, and if you're a service provider you bill for it. If later on they come back several months later or there's problems, you bill for that service, too. It's a fee-for-service mechanism. It doesn't align well with what patients want or most of us want as consumers.

Taking that a step further, I stand back — I'm a family practice physician by training — and I think to myself about healthcare. What's the biggest defect in healthcare or in health? I would argue the biggest defect is illness. Nobody wants to get sick. All of us would prefer to stay healthy. Nobody wants to get sick. All of us would prefer to stay healthy, but the way it works today is if we get sick, and we go see somebody for that, a bill is generated. If we're healthy, and we don't get sick, nobody gets paid. We're paying for illness, but what we want is wellness. That sounds sort of wacky, doesn't it?

Mark: Not at all. Is there expected to be a big impact? If you look at people with chronic conditions that might lead them to the ER every couple of weeks, let's say asthma or whatever condition's not being properly managed, if I hear you right, the ACO provides some collaboration and payment incentives. If everybody working together in the ACO keeps that patient out of the hospital, that the patient clearly wins, the people paying for the healthcare win, and the organizations providing the care, will win as well.

Dr. Gruner: Right. Maybe I'll transfer this, and think about it. If we think of different models of paying for care, fee-for-service versus an ACO, and then think about the three big things we need to do in healthcare. I'm going to really simplify this to say there's only three things we need to do in healthcare.

The first thing we need to do is we need to keep people healthy. In a fee-for-service model, you don't get paid for that. There's no incentive to do that other than the moral incentive to try to keep people healthy. In an Accountable Care Organization, you've got financial risk for people's health, that the healthier they are, the better you do financially. The ACO model clearly, is better connected to keeping people healthy.

The second thing we need to do is when people get sick, we need to restore them to full health as quickly as possible, with the least complications, in the most efficient way we can do that. Again, the fee-for-service model doesn't align with that very well because the more we do, the more we get paid. Unfortunately, the more complications the patient has, the more we get paid. Whereas the Accountable Care Organization, now we can look at that, and say a hospital in this mechanism becomes a cost center. It's not a profit center. It's really a cost center. You absolutely can't afford to have complications in rework and defects and waste.

The third thing that we really need to do in healthcare, if you talk to patients or customers, is most people really want at the end of their life, they want to have a relatively painless, relatively short transition plan to dying, or to many people's beliefs to the new world, transition from this world to the next. Nobody, that I hear, says, “I really would like to suffer for two years.”

Those are the three things. The fee-for-service methodology, if you say we want to not have a long, painless, drawn-out death, the more you do to people, the more you're paid. The more chemotherapy you administer, the more you get paid. The more time in the ICU, the more you get paid. In the ACO methodology, it's focused on quality of life and quantity of life. When you think about those three things, and you'd have to argue or come to agree with me, that those are the three things that people want most in life, when it comes to their health. If those are the three things, the current way we're paying for it is all cattywampus.

When I think about an ACO, I have lots of thoughts. One is, “Wow, that might be the right way to do it, but how do I ever transition, when a hundred percent of the way I get paid today is in fee-for-service, to this entirely new way? That's an entirely new way of thinking. I'm going to need different competencies, different skill sets to do that, so how would I even start thinking about it?”

Mark: It seems like the ACO concept makes a lot of sense, reducing waste, improving quality, improving quality and outcomes, and quality of life. Is this the type situation where the devil's in the details? I'm curious. Maybe in that context…

Dr. Gruner: The devil's in the details, but there's another thing about it that people haven't thought about much. We know that one of the principles of Lean is “No problem is a problem.” How many times have we heard people say that? Putting that into a question, what payment methodology will best surface problems, and will best reveal the problems, the defects, and the waste? My answer to that is also an ACO. Because we pay for fee-for-service, I don't think it really surfaces those problems, and you can cover them up because you're getting paid for this extra stuff.

In an ACO model, all of a sudden when you're on the hook for the cost and the quality, they're going to stand up real quickly like, “Well, we can't afford to have X percent of wound infections after surgery,” or this or that. You're really going to be on the hook for improving that.

It's a different way to think about it, but think about what payment mechanism will most surface problems. If we're in the way of thinking, which some of us have been for a long time, that we don't want to surface problems, the last thing we want to do is get another patient complaint, we don't want to surface problems, then we're going to have an incredibly hard time shifting to an ACO, or trialing it. If we're in the mindset that we've learned enough about Lean to say, “Hey, you know, this is a good thing to surface problems,” then that's yet another reason why an ACO is a good thing to consider.

Mark: Makes sense. Some of this is maybe an extension of the idea of the federal governments and other payers, not paying for the “never events,” such as hospital-acquired infections, falls, things like that?

Dr. Gruner: Correct. It's somewhat of an extension to that. It's taking it from a single case-specific to generalizing it to patient population.

Mark: Can you talk a little bit about your decision, ThedaCare's decision, to participate in an ACO? Is it still, is it fair to say, a small number of organizations that are piloting this approach?

Dr. Gruner: There are 32 that are pilots with Medicare. There's like 6,000 hospitals. I'm guessing that amounts to maybe about a thousand healthcare systems. We're one of the three percent. I should qualify this, this was not ThedaCare, this was ThedaCare and Bellin Health, with our physician partners.

This was not a ThedaCare-only decision. This was with our physician partners collectively deciding that this was a good thing to do. Why we chose to do this was a couple of things that made it easier for us. One is the way this is set up, the pioneer ACO is set up, is that there's a national trend of increased healthcare expenditures for Medicare.

For us to be successful, we have to have our rate of increase less than the national average. Our logic for this is that historically we've been less than the national average. Secondly, if three percent of the organizations in the country are trying to work hard, harder than the other 97 percent, to improve quality and reduce cost, and the other 97 percent are on a fee-for-service mindset, just conceptually would make sense that we have a pretty good chance of bringing our costs to increase our trend less than the national average because we're working on it, and they aren't.

The other part that made it pretty easy for us is that Medicare really, really wants people to be willing to be pioneers, so they actually crafted something that if we're unhappy, that with 60-day notice we could drop out. The risk to us of having something unexpected happen that would cost us millions of dollars — and we think it's fairly small — but in the event that happens, we haven't signed our life away for like five years. We could walk away with a 60-day letter, and we could be out of the program. Those two things made it pretty tolerable for us.

Mark: Let me say, the pilot is with Medicare. Medicare will be paying under this ACO model, private insurers will still be paying. You're still getting paid on a fee-for-service basis, somewhat in parallel with the ACO model?

Dr. Gruner: Right. What that means is we're piloting with 20 percent of our revenue. We don't want to try an experiment. It wouldn't be much of an experiment doing it with every payer we had. That wouldn't be an experiment, that would be just a huge change. This is 20 percent.

We want to pilot this with 20 percent, and see what happens, learn from that. It's a “think globally, but act locally” brace of physicians for social responsibility. We're thinking big, but we want to pilot something that's more manageable, with controllable risk, and learn as we go, and then, have more conversations about how is it working, and whether we should expand this approach to commercial payers.

Mark: I'm guessing that decision's based on a balanced view of measures, things that I'm guessing are aligned with the different dimensions of your true north. You're going to be looking at quality and safety outcomes, financial performance for the organization. Is that part of your evaluation criteria and the partner organizations that you're working with, Bellin Health, and the physician groups?

Dr. Gruner: It will be. We'll also be trying to get a sense for if we were to convert not just 20 percent of our business, but say shift so that more half of our business and our revenue, came under this payment model, what would be required? I'm sure it's a different set of skills and competencies, than what we have today in the fee-for-service world.

How would that work? What would be required? We're trying to open up the work on this to try to figure that out. We don't have a clue whether the transition costs of going from our current way we're getting paid to this way for all our business, how big of a deal is that?

What we don't want to do is do that all at once because that sort of feels like we're betting the company on our ability to manage effectively in this new world. We may not be able to, so we want to learn as we go.

Mark: One other thing I'm curious about, with the great things ThedaCare has done with Lean and TPS, under the ThedaCare improvement system, how do you see that being complementary, or supporting, that transition to ACO? You've mentioned a lot of things in the context of ACO that are familiar Lean terminology, of course reducing defects, improving quality, providing better value. How do you anticipate or see that fitting together for you?

Dr. Gruner: Again, seen at a higher level, conceptually, if we're in a fee-for-service world, you get paid more to do it, so the race is to see how can you do more things to people. That's the way it is. It is fee per volume, that's what it is. ACO is fee for value, so not for some volume, but for some value. The key thing that you have to be able to do is probably be able to increase the value of what you're providing to the customer.

Now, it's all about improvement. No matter where you start, no matter what community you're in, it's about “Can you improve at a more rapid rate than you did last year?” In our mindset, that is the essence of Lean, creating an improvement organization that can learn and improve more rapidly this year than last year. By the way, it would probably a good thing if you can improve or learn more rapidly than your competition. It's all about improvement and learning.

Mark: It seems like from what you describe of starting with a pilot, it sounds like there is some strong hypotheses about how this is going to work. Being open to learning and being adaptive, it seems like the experience that you and other ThedaCare leaders have with that mindset is going to serve you well through that ACO experimentation evaluation process.

Dr. Gruner: Well, we hope so. We do have some past experience with that. We owned our own health plan, our own HMO from 1987 to 2004. Although it's been eight years since we sold that health plan, it was being a part of our business that we remember what that was like. Depending on your perspective, you can call that “the good old days” or you can say, “That was the worse days of my life.”

But, we do have some of that experience so it helps us to say, “Well, you know, in a way, this is sort of like going back to the health plan days, but it is different.” It does help us get comfortable with taking that risk though.

Mark: Sure. Great. Dean, you're going to be talking about this as one of the sessions at the “Lean Healthcare Transformation Summit,” June 6th and 7th in Minneapolis. Is there anything else that you want to share, previewing what you're going to say or what you expect from that time in the summit?

Dr. Gruner: Just that this was a fairly spontaneous conversation that you asked me to have. I have not prepared a single slide yet, so having you ask me a lot of questions is going to help me think through some of the things that I want to share with that. I can assure people that whatever I share in June 6th and 7th will be fresh because it won't be based on some slides that I was talking off today.

Mark: It sounds like this is rapidly evolving, so the difference between April and June there will be more learning, more progress, new thoughts.

Dr. Gruner: Sure. Two months in healthcare is now an eternity, it seems.


Mark: Dean, thanks for giving a preview of the talk for those who are going to be able to attend the summit. For those who won't be able to go, thanks for giving a good introduction to ACOs and what you are working on there at ThedaCare. Thanks again for sharing that with us today.

Dr. Gruner: You bet. You're welcome, Mark and have a great day.

[background music]

Mark: Thanks, you too.

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Mark Graban
Mark Graban is an internationally-recognized consultant, author, and professional speaker, and podcaster with experience in healthcare, manufacturing, and startups. Mark's new book is The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation. He is also the author of Measures of Success: React Less, Lead Better, Improve More, the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, and the anthology Practicing Lean. Mark is also a Senior Advisor to the technology company KaiNexus.