Not a Cup of Coffee
Strategies for fighting physical therapy commoditization.
By Rick Jung
I travel a lot. It is one of the most meaningful parts of my job. I love visiting therapists across the country and learning about the problems they need help solving.
When I am on the road, I sleep in hotels, eat food I do not normally eat, and wake up at different times. Despite the many things in flux, there is always one constant: a Starbucks cup of coffee.
No matter what state I am in, or what airport, I know that I can put down my $2.10 and get the exact same cup of coffee. It is a commodity; I will pay no more than $2.10 for a grande cream/no sugar, regardless of how many barista awards the person who served it has won. A strong cup of coffee is a strong cup of coffee.
After nearly three decades of working in health care, I have observed with great concern a similar commoditization of the physical therapy industry.
The PT Commodity Box
A commodity is a basic good or service that is interchangeable with other goods or services of the same type. The quality of a given commodity may differ slightly, but it is essentially uniform across producers.
Many referring physicians and payers view physical therapy the same way: as an easily repeatable service with little variance in value and, therefore, cost . . . like a cup of Starbucks coffee. Given this inherent uniformity, who would want to spend more than the lowest possible amount for it?
Signs of physical therapy commoditization are popping up everywhere: in reduced reimbursement rates, in the overemphasis on therapist productivity (instead of optimizing their time and taking burdensome administrative tasks off of their workload), and in the replacement of local physical therapy groups with national chains for managed care contracting.
While physical therapists have seen their incomes fall and their clout with insurers shrink, perhaps the biggest pitfall of physical therapy commoditization is the erosion of the patient/therapist relationship. For many physical therapists, that connection is the most treasured part of their profession.
Because insurers and employers pay the lowest possible price for a service that is perceived as a commodity, physical therapists are forced to maximize patient visits. That is a significant loss from the patient’s perspective, too, as getting them to complete their course of care depends largely on trust. But commoditization limits that face-to-face time, carving away at a patient’s comfort level and devaluing what services and counsel the therapist offers.
The stakes are high. Unless physical therapists distinguish their services on the quality front, they will be forced to compete in a commoditized market on price alone. This will inevitably lead to suboptimal care and the marginalization of the physical therapist as a key decision maker in overall population health management.
Physical Therapy as an Interchangeable Good: How Did it Come to This?
By definition, commoditization occurs when goods and services lose their differentiation across their supply base. The erasure of differences in physical therapy has been decades in the making. Two major historical events in the larger health care industry set the stage:
- Grouping Prospective Treatment into Homogeneous Units. Though it is a relatively new buzzword, the move toward greater commoditization started nearly 30 years ago when Medicare established its own fee schedule for Part A hospital services. Rather than continue paying hospitals based on their costs, Medicare created the diagnosis-related group (DRG) system in the mid-1980s and paid hospitals a flat rate for per DRG admission. In effect, the new model paid hospitals a predetermined, set rate based on the patient’s diagnosis. Over time, the ensuing cost cuts were devastating for small and medium-size hospitals, which had no choice but to consolidate. This consolidation expanded to all points along the continuum of care and gave way to commoditization, which is still going strong.
- Paying for Effort, Not Outcome. The arrival of DRGs in health care pricing was soon followed in the 1980s by Resource-Based Relative Value Scores (RBRVS), a system that determines how much money outpatient providers should be paid on a fee-for-service basis. One of the fundamental problems with RBRVS is that it determines payment based on the amount of effort expended, with no regard for whether that effort produces a favorable outcome. As a result, complex and costly interventions are often overused instead of effective, lower cost treatments like physical therapy. Today, RBRVS is the basis used by Medicare and by nearly all commercial payers to derive fee schedules.
These two pillars of our modern health care system helped lay the groundwork for today’s reimbursement shifts and consolidations. In this health care environment, despite the Affordable Care Act, there is little correlation between price and quality. Payers and referring physicians perceive little differentiation among therapy services and thus cost—not value—becomes the driver in physical therapy utilization. In other words, all physical therapy visits are equal.
We know this is not the case. Low back pain is a perfect example, with the cost of treatment creating a major economic impact worldwide. In the United States, patients with musculoskeletal conditions incur total annual medical costs of approximately $77 billion.1 Numerous practice guidelines have been developed for patients with low back pain. Some approaches produce inarguably better outcomes and are more cost effective than others. Physical therapists should be at the center of making treatment recommendations for musculoskeletal conditions, not at the periphery as a second thought after surgery and other specialists.
But how effectively are physical therapists communicating the differences in their treatment value?
Fighting Back: The Power of Data
Historically, outpatient rehabilitation providers were not required to track or communicate therapy outcomes. As health reform transforms the industry, this is no longer the case. Payers are increasingly searching for value, and physical therapists are being required to demonstrate clinical effectiveness along with low costs to participate in many insurance plans.
Yet, while the ability to demonstrate outcomes is more important than ever, physical therapists must consider the following best practices for using this data successfully:
- Report on Functional Outcomes. Physical therapists have been largely set up to fail in defining their value. The communication system is traditionally set up to track medical problems as dictated by insurers, which often means that there is a code for relieving the effects of low back pain, but not a means for measuring it according to real-world function. The effectiveness of medical care is easier to measure than the effectiveness of physical therapy care. Diagnosis codes and procedure codes are a much more accurate descriptor of the problems treated by physicians, and of the procedures they perform. In our disease- and injury-centric medical system, physical therapists do not have a way to describe and classify their work in returning people to full function. To demonstrate effectiveness, physical therapists must standardize around proven outcomes instruments and performance-based patient tests that demonstrate true functional progress. This type of data has not been embraced by the physical therapy industry because it is not needed in a fee-for-service industry.
- Report Clinical and Financial Data. Private physical therapy practices typically keep financial and clinical data in separate silos that can only be analyzed through human interaction or complicated processing. These architectures are no longer defensible as the industry responds to federal quality reporting requirements. In order to rapidly analyze metrics across large population groups, develop evidence-based therapy guidelines, and better manage care for chronically ill patients, outpatient rehab providers must integrate clinical and financial information systems. The technology is out there to help therapists understand and communicate the clinical effectiveness and financial efficiency of the treatment they provide.
Redefining Physical Therapy in Population Health Management
Population health management uses data from across the health care continuum to improve quality of care while gaining efficiencies and reducing cost. Traditionally, health care has been rather disconnected across settings and providers from both an information technology and a process perspective. This makes it challenging to achieve coordinated care, often to the detriment of the patient.
Physical therapy can fight commoditization by integrating into tightly integrated networks that utilize outcomes and cost data. Armed with that invaluable data, physical therapists can become an appropriate point of entry in health care, and direct patients toward the most appropriate providers as necessary, such as outpatient clinics or urgent care centers, and be at the center of the continuum of care—not sidelined to the periphery as a commodity.
No effective payment system should treat everyone equally. I am the first to argue that low-quality and high-cost providers should be held accountable. In order to differentiate value and reverse the commoditization trend, physical therapists must show their own compelling value in vivid detail with clinical and financial data. Moving forward, we, as an industry, must take back our power.
1. Gaskin DJ, Richard P. Relieving Pain in America: A Blueprint for Transforming Prevention, Care, Education, and Research Appendix C, The Economic Costs of Pain in the United States. www.ncbi.nlm.nih.gov/pmc/articles/PMC3843519. Accessed April 2016.
Rick Jung is chief executive officer and chairman of Clinicient. He has spent 25 years working in health care services and has extensive revenue cycle management expertise. He can be reached via Twitter at @RichardGJung.