Q&A

A Conversation With Stephen M. Shortell, PhD, MPH, MBA: Will We Ever Achieve The 'Holographic Organization'?

An academic expert on health care integration and reform reflects on more than two decades of systems research and how to recognize real, meaningful integration

Larry Beresford

Twenty-one years ago, Stephen Shortell, PhD, MPH, MBA, co-wrote an article in Healthcare Forum that coined the term “holographic organization” to describe a health system so well integrated that, like a hologram, any part of the network would reflect the clinical and fiscal aims of the system as a whole.

In that article, Shortell, who recently completed 11 years as dean of the School of Public Health at the University of California–Berkeley and continues to teach there as the Blue Cross of California Distinguished Professor of Health Policy and Management, predicted that the 1990s would come to be seen as the time when the United States made the necessary advances to create a health care system that fulfilled the needs of its population while emphasizing both quality of care and cost containment. That prediction didn’t quite come true.

Stephen Shortell, PhD, MPH, MBA

Stephen Shortell, PhD, MPH, MBA

Once again, integration has become a major focus for reform efforts and for emerging health delivery systems. A major vehicle for integration today is the accountable care organization (ACO). But it is worth asking: What is different about this year’s model of integration? Will the ACO succeed where the frantic managed care reorganization of the 1990s did not — or is this just a replay?

Shortell has advised presidents on reform and was the principal investigator for the National Study of Physician Organizations. His research at UC–Berkeley has explored the organization and quality of physician groups as well as the defining characteristics of ACOs. He was elected to the Institute of Medicine in 1986, served on its Committee Designing the 21st Century Health System, was editor-in-chief of the journal Health Services Research, and was president of the Association for Health Services Research. He also sits on the advisory board of Kaiser Permanente’s Institute for Health Policy, the Centene Corp., and is a director at the ThedaCare Center for Healthcare Value.

Medical journalist Larry Beresford asked him to reflect on whether the holographic organization was ever realized and on the hallmarks of integration that is worthy of the name.

Managed Care: Let’s start with the holographic organization. What did you mean by that concept in 1993, and how would you reframe it as a metaphor for health care integration today?

Stephen Shortell, PhD, MPH, MBA: The whole idea of the holographic organization was that, like the hologram, the whole is reflected in each part, whether you turn it this way or that way. It began with research we did in the 1990s when I was at the Kellogg School at Northwestern University. I became interested in integrated care and how that could promote better outcomes, efficiencies, and so forth. So we put together two studies with colleagues at KPMG Peat Marwick. We went out to the field and got nine integrated health systems to participate. You might call it action research or practice-based research. Our book from this work, Remaking Health Care in America, was published in 1996 and updated in 2000. From that work, we learned a lot about integration, and we defined three categories of integration. The first was functional integration, the back office, human resources, information technology, legal, and so forth. Then there was integration of physicians, as a group, within systems that have shared goals between hospitals and doctors. And finally, clinical integration, which we felt was the most important and which we simply defined as coordinated care across people, settings, time, functions, etc. In other words, bringing it all together for the patient.

MC: So we might say the opposite of the hologram in health care is the separate silos?

Shortell: The silo, with its fragmented bits and pieces. Think of a jigsaw puzzle with its pieces scattered all over the place. The holographic organization brings all of those pieces together. Embedded in its DNA are what I would today call evidence-based, technology-enabled, patient/family-engaged health care teams to deliver care that meets patient needs and preferences with efficient use of resources. That’s a lot of words, but that’s what we discovered.

MC: What are the hallmarks of this kind of integration?

Shortell: It doesn’t exist in most of our systems, which helps to explain the complexity and fragmentation that we have today. From a high level, an integrated system is a very aware system. It knows what it’s doing. It knows what’s occurring 24/7 with all of its patients, who are also members of the care team. And it’s managing the health of that population continuously. That’s a tall order; it really is. I don’t think anyone achieves it totally. The Kaisers, Mayo Clinics, Geisingers, Group Health of Puget Sounds, ThedaCares, and Intermountains of the world come close, but it’s a constant struggle, because there’s so much working against it — most of all, until recently and still now in many cases, the payment system, which is just perverse. Integration is the antidote to fragmentation, and the big change now is beginning to pay for value rather than volume. We’re moving away from fee-for-service to where you earn more of your money up front, through bundled payments or through shared savings under an expenditure target, which frees you to innovate. What’s beginning to change under the Affordable Care Act [ACA] with the ACOs is that more provider systems are at risk. The business model is changing to where you make money by keeping people well. If you’re going to keep people well, out of the doctor’s office, out of the hospital, out of the ER, then you have to engage the patient. To do that, you need data, information, feedback to doctors, and an electronic health record. When people do get sick, now you have incentives to work across different settings to manage their care, because you’re all in it together. Plus we have quality metrics we didn’t have 15 years ago. That’s why in the ’90s, a lot of this stuff didn’t work and there was a managed care backlash, because it was basically all about trying to contain costs without as much on the quality side. With the Medicare ACO programs, you don’t get any of the shared savings unless you first meet their 33 quality metrics. That’s the guard against stinting or underserving. And tools such as Total Quality Management, the work of the Institute for Healthcare Improvement, lean production techniques, value process mapping … all of these things are beginning to come together to nudge the system to undertake these changes and break down the silos.

Where a market is competitive, the threshold at which hospital administrators decide to move to a risk-based model is lower than in markets with less competition.

MC: But in 2014 we are still in a situation where one foot is on the boat and one on the dock, right?

Shortell: Absolutely. That’s key. What’s the threshold point in different markets across the country for hospital administrators and others to put both feet on the new dock of risk-based reimbursement? What we’re finding, in a lot of the field work we’re doing, is that where a market is competitive, the threshold at which hospital administrators decide to move to a risk-based model is lower than in markets with less competition. Where there is competition, administrators are saying, “I don’t want to be the last kid to get on the new dock.” I’d better start shifting to this new model, even if only 25% of my revenue is coming from risk-based contracts and I’m still getting the rest through DRGs and repeat hospitalizations. Even if I have to leave money on the table for now. In the markets where there isn’t that pressure, they’re waiting. They’re telling us that they understand that it may come about. The ACA isn’t going to go away, after all. But because they are making plenty now, they are thinking, “I’ll change when most of the country changes and I really have to, when you force me to because it’s the only game in town. Until then, I’m not going to go through the agony.”

MC: Are there markets where it really does make business sense today to have both feet on the new dock of risk-based reimbursement?

Shortell: The Twin Cities, Massachusetts, and Maryland. Oregon has put all of its Medicaid into Coordinated Care Organizations, which essentially are ACOs. California and Wisconsin are also moving toward putting both feet on the new dock.

MC: Could we talk more about that tipping point, and how it emerges at the grassroots level?

Shortell: The first issue is whether others are doing it. That has a lot to do with the nature of negotiations between health plans and delivery systems, when the plan says to the health system, “Let’s do a new deal.” The first questions the provider asks are, “Are we talking 5,000 enrollees? Then I’m not interested. Twenty-five thousand? I’m more interested, so tell me about the nature of the contract and the incentives. How much data are you going to share, and will we get them quickly enough that we know what’s going on with our patients?”

MC: Twenty years ago, capitation was a big part of the integration conversation. But by and large that didn’t take hold, right?

Shortell: It didn’t spread a lot, that’s correct. Capitation is one form of risked-based care. The way I think of it, we now have a portfolio of approaches that are going to create incentives for more population-based health care. First, you do away with fee for service. Then you can try out bundled payment, perhaps with certain conditions. Or capitation, but it could be partial capitation for ambulatory and outpatient but not hospital care, or vice versa. Or diagnosis-based capitation, or full capitation like Kaiser with its prepaid premiums. And then global budgets, with global payments.

MC: Can we define the ACO in plain language?

Shortell: It is an entity, call it what you will, that agrees to provide care to a defined group of patients and be held accountable for total costs and quality of care for those patients. If it meets quality and cost targets, it gets rewarded, and if it doesn’t, if it’s risk-based, then it loses money. A lot of organizations call themselves ACOs but have only parts of the definition, or don’t have at least 5,000 covered lives. We don’t consider them ACOs.

MC: Is the ACO the tool to structure the mechanisms for achieving the larger goals of integration?

Shortell: It’s one, but not the only one. The key is going to be payment reform, which will drive the rest of delivery-system reform. It comes back to innovation in payment and innovation in care delivery and how you put teams together, and innovation in the use of the health workforce and in technology — information technology and treatment technology. One way to think about it is what I call packaged innovation. It takes several things working together, interdependently, as with the hologram, to get the savings. But the payment system is key to what’s going to drive all of the other changes. Our research is working from a very simple paradigm: incentives plus capabilities. Incentives alone are not enough. Organizations have to develop the capabilities to respond to the incentives.

MC: We’ve had some experience of ballyhooed changes that ended up making little difference. How do we address the skeptics to say something is really going on here that people should pay attention to?

Shortell: The skeptics might be right. But let’s think about this. A couple of years ago, there were a handful of these ACOs, 32 pioneers, plus some shared-savings ACOs. A lot of people thought that by this time, 2014, the ACOs would go away, or there might be at most a handful of them. Well, there are now more than 600 across the United States.

MC: So as an industry, ACOs are booming?

Shortell: They’re booming. The names may change, or whatever, but it’s not just talk. And it’s not just California or Massachusetts or Minnesota or Wisconsin, but in Texas and other places as well. So it’s unlikely that this is just a short-lived phenomenon. There are several other reasons why we say all of this is at least directionally correct. First of all, what’s different, compared with 10 to 15 years ago, is that we had the recession. We have a challenged economy, and we have this huge deficit, so much of which comes from the health sector, and it is no longer tolerable. We have more people that are elderly, and health care costs are 18% of the economy. That’s taking money away from things that promote health. There’s a strong recognition that we can’t continue on that kind of trajectory. That gave a lot of the stimulus to the ACA and to increasing insurance coverage for more people, but also putting in some kind of mechanisms, however weak they might be at this time, to reduce the rate of growth of costs. And for the first time, efforts to make systematic changes in payment by moving toward bundled payment and capitated payment are creating real incentives to do things differently.

There are some studies that show this new way of delivering care is likely to save money. With other studies, it’s not as clear.

MC: Is there, or will there be, conclusive evidence to say absolutely that this new approach significantly saves money and provides better outcomes than the way we’ve always done things?

Shortell: This is an open question. It is the big question. The early evidence is mixed. There are some studies that show this new way of delivering care is likely to save money. With other studies, it’s not as clear. Some Medicare pioneer ACOs lost money and others made a little bit of money, not a lot. But they all hit the quality targets. There are maybe seven or eight studies under way concurrently; we’re doing some of that work here at UC–Berkeley, as are others around the country. But to answer your question, no, it’s not conclusive. Is the water rising? Is the glass half full or half empty?

MC: We could almost say that you’ve bet your career on integration.

Shortell: Yes, well, I’m a researcher. I try to be independent and objective. I published a study showing no impact from ACOs. So I’m not an advocate or a cheerleader. But just stepping back, I do think it’s the right way to go. It makes intuitive sense, right? It’s hard work. We’re asking the clinicians to change their careers, the way they were educated in medical school, the way they’ve been paid, the way they’ve been mentored. We just did some site visits for a study for the Gordon and Bettie Moore Foundation [“Moore Foundation grant will spotlight patient engagement in accountable care”] on patient activation and engagement. We went up to Group Health Cooperative in Seattle. They’re doing a lot of great things, with incentives to do them. They’re a little like Kaiser Permanente. To a person, clinicians told us: This is hard, because now I’ve got to spend more time with my patient. I’ve got to learn how to delegate more to my nurse practitioner. I’ve got to learn how to use data. I get all these reports — what do I do with them? With all the things on their plate, and so little time, despite their good intentions, things slack off.

MC: Let’s talk about the Berkeley Forum for Improving California’s Healthcare Delivery System. What has it accomplished?

Shortell: It started about two years ago. I called CEOs of leading health systems and insurance companies, some of the larger medical groups. To a person, they all agreed to participate. Over a period of one and a half years, they developed a shared vision [http://berkeleyhealthcareforum.berkeley.edu/report/executive-summary]. They came up with a bold vision for health for California between 2013 and 2022, to move the state away from fee for service toward other forms of payment and to get more people into integrated systems of care. We did the analytics at Berkeley. I chaired the group. It was funded by the systems and insurance companies themselves. We issued a report that got some play nationally. What we said was fed into a report on health in California that Gov. Jerry Brown put out last December and put into California’s $100 million grant request recently submitted to the State Innovation Models Initiative at the CMS Innovations Center. The Berkeley Forum already has had an impact, and at a follow-up meeting on May 9, they asked us to do three research briefs by the end of this year. One is on palliative care, a second is on ACOs in terms of accelerating what’s going on in California, and a third is to bring the cost trends up to date.

MC: Do they essentially share the understanding about integration and payment reform that we’ve been talking about?

Shortell: Yes, they do. They are united in their vision. They’re the ones who said: Let’s forget capitation. Let’s go all the way to global budgets. Let’s not fool around. Let’s not waste transaction costs. Even though they understand it can’t happen overnight.

MC: What should health plan CMOs and other physicians make of all of this high-level discussion?

Shortell: There may be other parts of the country that need to give more attention to why this needs to be done. But that’s not the case in California. I’m on the advisory board of the Integrated Healthcare Association. They have people around the table who are in the trenches, and they’re fully engaged. They understand that they’re getting paid differently and know that unless they start breaking down silos and doing things differently, they’re not going to survive. And because it is difficult, they are turning to each other, looking for a lot of help. It’s a very heavy lift, but it’s a necessary lift. Let’s make no mistake, it has to occur, and let’s figure out how to do it faster, better and keep at it. Those are the messages we hear.

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