Michael Leavitt on value-based payments: Ignore signals 'at your own peril'

CHICAGO -- Pearl Harbor. Blockbuster. The dot-com bubble. All have one thing in common. Leaders missed subtle signals that warned of pending danger. Michael Leavitt, former secretary of the Department of Health and Human Services, urged healthcare leaders not to ignore the signals accompanying the shift from fee-for-service to value-based payments.

Major intelligence failures are failures of analysis, not failures of collection, Leavitt (right) told healthcare executives Tuesday at the American College of Healthcare Executives 2016 Congress. It's true for the government, it's true for business and it's true for healthcare, he said.

Leavitt, the founder and chairman of consulting firm Leavitt Partners, said leaders of hospitals and healthcare systems must pay attention to the signals about the accelerated move toward value-based payments. They are happening at different rates depending on the local market, but signals by the federal government are no longer weak: They're profoundly real, he warned.

Consider, he said:

  • The federal government is 11 months ahead of its schedule to tie 30 percent of Medicare payments to alternative models.
  • The Centers for Medicare & Medicaid Services just announced it would test value-based purchasing plans for Medicare Part B drugs
  • The agency will bundle payments to hospitals to perform hip and knee replacements

"Ignore these signals at your own peril," he said.

Leavitt used the analogy of Cinderalla at the ball. She knew her coach would turn to a pumpkin when the clock struck midnight but still she didn't want to leave when it was 11:30. Healthcare leaders know fee-for-service will disappear. But when the clock strikes 12, he said, "We have a new piece of information, Everyone in the room is Cinderella and there is a great collision at the door and not everyone is going to get out of the door safely."

Healthcare leaders who can make sense of the weak signals will have the opportunity to do it right, he said. "You can fight it and die, you can accept it and have a chance or you can lead it and prosper."