Unsustainable growth of health costs and inconsistent clinical outcomes have forced the United States to re-evaluate how health care is delivered. Health care costs have grown from 7.2 percent of the gross domestic product in 1970 to 17.9 percent in 2009 and 2010. Despite this spending increase, Americans' average life expectancy and the efficiency of our health care system are ranked near the bottom of countries with advanced economies.

This cost inflation is more than a health care problem. At one-sixth of economic output, health care cost inflation is an obstacle to economic expansion. According to a Rand study, increased family contributions to health care absorbed almost half of the growth in U.S. pre-tax income from 1999 to 2009. Starbucks CEO Howard Schultz has been quoted as saying that his company spends "more on health care than it does on coffee beans." The problem is clear — health care spending is affecting the economy of the United States. There must be a solution.

The Affordable Care Act has a number of provisions baked in that address cost and efficiency in health care. As an example, there are provisions that encourage providers to begin taking responsibility for the cost and quality of care. The law authorizes demonstration projects focused on measuring the value of patient-centered medical homes and payment bundling.

Additionally, the ACA instructs the Centers for Medicare & Medicaid Services to create a shared-savings program for accountable care organizations, which are groups of hospitals and doctors committed to reducing the cost and improving the quality of care. This program, which began Jan. 1, 2012, has been followed by new Medicare initiatives that penalize hospitals for avoidable readmissions and base a portion of their reimbursement on quality measures.

Population Health Management

The flurry of federal activity has been paralleled by private insurers' developing their own ACOs and bundled payment programs; these have, in turn, motivated many provider organizations to prepare for the reimbursement changes that assuredly loom ahead. The overarching impetus of this activity is a move from fee for service, which is regarded as a major reason for the nation's health costs, to reimbursement that includes increased financial and clinical accountability on the part of providers. To cope with these new demands, health care systems and physician groups need to move toward population health management.

The goal of PHM is to minimize the cost of care and enhance the overall health status of a given population by providing care (or supporting wellness) at the earliest practical point in the care continuum. This is in contrast to treating disease at the acute care level. There is a specific focus on minimizing expensive interventions (emergency department visits, hospitalizations and tests) by managing health problems at the least expensive point of care. This approach not only lowers costs, but also redefines health care as an activity that includes far more than sick care and acute interventions.

It is true that taking a PHM approach focuses to a large degree on the high-risk patients who generate the majority of health costs. But, it also systematically addresses the preventive and chronic care needs of every patient in the defined population.

Because the distribution of health risks will change over time, the objective is to identify and intervene in high-risk factors that cause people to become sick or exacerbate their illnesses. It is important to understand that medical care is only one of many factors that affect outcomes! Social environment (income, education, employment, social support and culture), physical environment (urban design, clean air and water), genetics and individual behavior are also important determinants of health.

Planning for PHM

Population health management is not new; the idea has been around for a while. It has become a hot topic recently because health care reimbursement is changing. Hospitals, health care systems and physician groups must adapt to a new world in which providers are rewarded for meeting quality objectives for their entire patient population — not just those patients actively seeking health care. The focus clearly is shifting from volume-based payment to value-based payment. Organizations that begin planning for patient-centered, high-quality health care delivered to a specific population will be the leaders.

Defining the population.The first step in developing a cross-system population health approach is to choose a target population. Focusing initial population health management efforts on a clearly defined, target population allows an organization to apply success across multiple populations and/or therapies in the future. Organizations that are considering populations to target should consider therapies their organization is known for or wants to be known for as well as those for which the organization may be at risk. It is also important to consider data availability for the target population. Organizations also may consider a demographic segment of the population for their initial targe,t particularly if it represents a high-growth element of the market area (e.g., people older than 55).

Managing across the continuum for clinical integration.In laying out a population health approach to care, an organization must be able to provide proactive preventive and chronic care to a population both during andbetween encounters with the health care system. This continuum-of-care approach requires that providers establish and maintain contact with patients, and support their efforts to manage their own health. This perspective is different from focusing on acute intervention within the four walls of a hospital or physician's office!

Organizations pursuing population health must focus on delivering health care in the most effective and efficient setting possible. They must have in place a clinically integrated network with effective care coordination. Clinical integration means that a range of providers and services across the continuum — including physicians, hospitals, rehab, lab services and nursing services — all agree on a set of evidence-based clinical standards and associated protocols for care of a given population. Without a clinically integrated network, managing utilization and costs and meeting quality standards are nearly impossible.

Building a clinically integrated network requires significant clinical leadership and collaboration. Physicians must lead the development and adoption of evidence-based approaches to care and be willing to work in a team-based model of care coordination. This model includes the extensive use of advanced practice nurses, care coordinators and physician assistants to deliver routine care in the office, and effective use of health technology for at-home monitoring and reporting of follow-up care.

Developing performance-based contracts.Organizations pursuing population health need to develop contracts with payers that are focused on meeting financial and quality metrics for managing patient health in all settings. Shifting from a traditional fee-for-service model to one in which the provider is at risk for a patient population across the continuum of care is a significant shift. With performance-based contracting, providers are rewarded for meeting evidence-based population quality and financial metrics.

Contracts often also reward providers for reducing inpatient admissions and ED visits as well as shifting the site of care to less costly settings. As may be obvious, shifting the site of care or using fewer expensive services is incompatible with a fee-for-service model, where providers are rewarded for using more, and more expensive, services.

In preparation for risk-based contracting, many organizations begin to think early about reshaping the role of physicians, from providers of office-based services to coordinators of patient care plans that include at-home and rehab services as well as traditional office visits. Moving from provider payment for services based on face-to-face encounters to one that pays based on how well a provider meets defined process and outcome goals for a population is essential for implementing population health.

Using data. Providers need to have relevant health status and utilization data for patients at their fingertips. Likewise, organizations need to identify and stratify patients for risk (low, medium and high) within a population so that they can predict when intervention is required (hypertensive diabetic at risk for acute myocardial infarction), and then deliver appropriate care.

Data management capability is critical for population health management. Information that providers will require may include health records, hospital and physician billing records, and insurance records; government sources such as Medicare or Medicaid; and community health clinics and rehab or long-term care facilities. Just obtaining data from this range of sources can be a challenge but, once obtained, it must be integrated and transformed into usable information, analyzed, and reformatted into decision support tools and predictive risk modeling the provider can use at the point of care.

Despite years of effort, fully integrated inpatient and outpatient records remain a substantial challenge. As of 2013, only 18 percent of hospitals indicated that they widely use predictive analytic tools for care coordination.

Leading the Change

The health care landscape is changing rapidly. The drumbeat for better outcomes and lower costs will continue. The challenge of implementing the shift to a population health management approach shouldn't be underestimated. The concept turns assumptions, processes and incentives developed over decades upside down, and requires deep expertise in change management and influence to build and retain support from key stakeholders.

As providers begin to tackle the challenge of managing population health, they'll need to develop a systematic approach to quality and financial improvement and how it's measured across the continuum of care. The practical demands of managing population health are significant — and require underlying cultural and operational shifts. The sooner health care leaders get started, the more likely they will be in a position to navigate successfully the challenges ahead.

Jill E. Sackman, D.V.M., Ph.D., is a senior consultant, and Michael N. Abrams, M.A., is managing partner at Numerof & Associates Inc., St. Louis.