Day: August 17, 2012

The Way Out of the Wilderness

Aug 17, 2012• 37

By David Dranove

In 1932, the Committee on the Cost of Medical Care identified rising medical costs as a threat to the financial security of millions of Americans. In a series of studies that created the field of health services research, the Committee recommended several strategies for cost containment that reads like a blueprint for today’s cost containment efforts: prevention, price controls, capitation, elimination of unnecessary care, and integration. If it sounds like a précis of my previous two blogs – cut prices and cut quantities – it should. We have known for a long time that those are the only ways to cut spending. And yet here we are, 80 years later, facing a spending crisis that threatens to take down the entire economy.

In my lifetime, we have been subjected to a steady drumbeat of rising medical costs. There have been respites – for a couple of years after Medicare introduced DRGs and for about five years in the 1990s during the heyday of HMOs. While DRGs and HMOs shifted costs down, they did not seem to reverse underlying growth trends, although HMOs did not thrive for long enough to be certain.

Not for lack of trying have medical costs continued to increase. We promote prevention, regulate prices, capitate providers, and review utilization to eliminate wasteful spending. We have seen horizontal integration that led to market power and higher costs, and vertical integration that more often than not created unmanageable bureaucracies. Most of today’s proposals for cost containment can be encapsulated by two words: “Try harder.” The Affordable Care Act gives us free preventive care, stricter price controls, ACOs, and the Comparative Effectiveness Institute. We need radical change but all we get is creeping incrementalism. I will take creeping incrementalism over the do-nothing approach of the previous decade, if only because we could use another respite. But the ACA is no permanent fix.

To Gauge Hospital Quality, Patients Deserve More Outcome Measures

Aug 17, 2012• 13

By PETER PRONOVOST, MD

Patients, providers and the public have much to celebrate. Recently, the Centers for Medicare and Medicaid Services’ Hospital Compare website added central line-associated bloodstream infections in intensive care units to its list of publicly reported quality of care measures for individual hospitals.

Why is this so important? There is universal support for the idea that the U.S. health care system should pay for value rather than volume, for the results we achieve rather than efforts we make. Health care needs outcome measures for the thousands of procedures and diagnoses that patients encounter. Yet we have few such measures and instead must gauge quality by looking to other public data, such as process of care measures (whether patients received therapies shown to improve outcomes) and results of patient surveys rating their hospital experiences.

Unfortunately, we lack a national approach to producing the large number of valid, reliable outcome measures that patients deserve. This is no easy task. Developing these measures is challenging and requires investments that haven’t yet been made.

The addition of bloodstream infections data is a huge step forward. These potentially lethal complications, measured using Centers for Disease Control and Prevention’s methods, are among the most accurately measured outcomes. In addition, the science of how to significantly reduce these infections is mature, and hundreds of hospitals of all types and sizes have nearly eliminated them. A program to reduce these infections that started at Johns Hopkins Hospital was spread throughout Michigan, and is now being implemented throughout the U.S., demonstrating substantial reductions.

Let’s Do the Numbers

Aug 17, 2012• 10

By Paul Levy

Julie Creswell and Reed Abelson offer a story in the New York Times about the HCA for-profit hospital system, noting “A giant hospital chain is blazing a profit trail.” The HCA story and similar ones about other hospital chains financed by private equity force us to consider how a such firms can achieve a return on equity that satisfies investors.

The answer is that they cannot, if we think about running the business on a long-term basis. What makes it work is extracting cash and the exit strategy, the heart and soul of private equity.

As Warren Buffett might say, let’s keep this simple. A for-profit hospital system has the following disadvantages vis-a-vis a non-profit hospital system: (1) Its finances are a mixture of equity and taxable debt, both of which are more expensive than the nontaxable debt of a non-profit; (2) it pays taxes–federal and state income tax, property tax, and sales tax–on which the non-profit is exempt; and (3) it is an unattractive vehicle for charitable donations, compared to the tax-advantages offered donors of non-profits.

These are hefty financial advantages for non-profits, which nonetheless are fortunate if they are able to earn an operating margin of 3%. Admittedly, that’s 3% of revenues, not a 3% return on capital.

An equity investor in a for-profit doesn’t care about margin, strictly speaking, but rather is focused on the rate of return of his or her investment. But let’s stick with the operating margin just for a moment, and let’s just accept that a 3% margin would not generate the kind of equity return demanded by the market place: You pick the hurdle rate: 15%, 20%, 25%, more? It doesn’t matter. A three percent margin just doesn’t get you there.

Using Predictive Modeling to Make Better Decisions

Aug 17, 2012• 7

By Russ Richmond, MD

In an article posted earlier this year on this blog I argued that hospitals have traditionally done a sub-par job of leveraging what has now been dubbed “big data.” Effectively mining and managing the ever rising oceans of data presents both a major challenge – and a significant opportunity – for hospitals.

By doing a better of job connecting the dots of their big data assets, hospital management teams can start to develop the crucial insights that enable them to make the right and timely decisions that are vital to success today. And, better, timelier decisions lead to improved results and a higher level of quality patient care.

That’s the good news. The less than positive story is that hospitals are still way behind in using the mountains of data that are being generated within their institutions every day. Nowhere is this more apparent than in the advanced data management practice of predictive modeling.

At its most basic, predictive modeling is the process by which data models are created and used to try to predict the probability of an outcome. The exciting promise of predictive modeling is that it literally gives hospitals the ability to see into (and predict) the future. Given the massive changes and continuing uncertainty that are buffeting all sectors of the healthcare industry (and especially healthcare providers), having a clearer future view represents an important strategic advantage for any hospital leader.

How Do We Bend the Cost Curve? Reduce the Waste.

Aug 17, 2012• 1

By Wendy Everett, ScD

Health care had its own version of the LeBron James “Decision” last month with the Supreme Court upholding the critically important elements of the Affordable Care Act. Now that the uncertainty is behind us―at least until the November elections―health care leaders can continue preparing their organizations for the changes ahead.

Fixing the system requires reforms at the macro level. But it also takes a symphony of smaller actions happening in concert. As experience bears out, it is difficult to agree upon a collective action with so many competing interests in health care and the partisanship that has gripped politics. But there is a song that we can all agree upon, loud and in unison. Reduce the waste.

Nearly a third of our health care costs come from wasteful spending and inefficiencies that could be avoided. Left unchecked, this is a nail in the coffin of our system; but, if tackled, is a huge cost containing opportunity. By identifying waste in the delivery system and systematically reducing it, we could lower costs without resorting to budget cuts and fees that compromise the quality of care.

“Healthcare” vs. “Health Care”: The Definitive Word(s)

Aug 17, 2012• 44

By MICHAEL L. MILLENSON

A recent contributor to this blog wondered about the correctness of “health care” versus “healthcare.” I’d like to answer that question by channeling my inner William Safire (the late, great New York Times language maven). If you’ll stick with me, I’ll also disclose why the Centers for Medicare & Medicaid Services is not abbreviated as CMMS and reveal something you may not have known about God – linguistically, if not theologically.

The two-word rule for “health care” is followed by major news organizations (New York Times, Washington Post, Wall Street Journal) and medical journals (New England Journal of Medicine, JAMA, Annals of Internal Medicine). Their decision seems consistent with the way most references to the word “care” are handled.

Even the editorial writers of Modern Healthcare magazine do not inveigh against errors in medical care driving up costs in acutecare hospitals and nursinghomes. They write about “medical care,” “acute care” and “nursing homes,” separating the adjectives from the nouns they modify. Some in the general media go even farther, applying the traditional rule of hyphenating adjectival phrases; hence, “health-care reform,” just as you’d write “general-interest magazine” or “old-fashioned editor.”

KP’s Ray Baxter Talks Weighty Issues

Aug 17, 2012• 2

By Matthew Holt

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Kaiser Permanente is a different kind of health system, as we all know. It has been a major funder of the HBO Series Weight of the Nation — reviewed by Kristin Molven in a companion piece on THCB today. Matthew Holt interviewed Raymond Baxter who is Kaiser’s Senior Vice President of Community Benefit, Research and Health Policy about the role KP plays in community and policy issues, and what we know and what we should can and should do about obesity.

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