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PAYERS/HOSPITALS: The CalPERS and Sutter Saga Continues, by MATT QUINN

According to an article in the SF Chronicle, the epic battle over hospital charges between CalPERS and Sutter, the state’s largest purchaser of health care and the biggest hospital chain in Northern California, respectively, is a conflict that demonstrates the major power shift that has taken place between those who pay for health care and those who provide it.

While in the past large purchasers held much clout in negotiating rates, even the largest have been unable to control costs. Despite reducing the number of HMOs it offers from 14 in 1997 to three,CalPERS’ HMO premiums have still increased 57 percent during the past three years: “The pension fund’s wrath used to be directed at health insurers. Now it has turned toward doctors and hospitals -and most specifically Sutter Health.” It doesn’t help that Sutter (CalPERS claims) has rates 60-80% higher than comparable hospitals.

But even Sean Harrigan, the president of CalPERS’ 13-member board, CalPERS admits that – in the world after managed care – it has far less “hand” to negotiate successfully:

    “We really don’t have the kind of bargaining clout we once enjoyed…There’s been so much consolidation on the provider side, especially among hospitals, that they are in many cases an oligopoly…They believe they don’t have to seriously bargain over price.”

And hospital leaders, in retribution for the tactics that big payers used in the past, aren’t planning to slow the rising cost of care:

    “Any schoolyard bully knows if you push somebody hard enough, they’re going to go pump iron and come back and deck ’em.”

So where does this leave employers who provide health coverage for their employees? In my guess, paying double digit annual premium increases indefinitely… until the system breaks and/or until consumers revolt as a result of their employers shifting a greater and greater share of expenses (in exchange for less and less coverage) to them.

Quick PS from Matthew: In 1994 (!) Ellen Morrison at IFTF and I had a big argument about whether payers would win out in this struggle or whether providers would face them down. Ignoring my clearly reasononed logic Ellen wrote a report called The Consolidation of Providers in the Six Americas which essentially forecast that provder consolidation would at least equal the power of managed care and purchasers within 5-7 years. Of course she was right and we’re dealing with the failure of the last decade of purchaser “power”.

HEALTH INSURANCE: ED Overcrowding – Addressing Supply & Demand, by MATT QUINN

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A recent study from the Blue Cross and Blue Shield Foundation on Health Care and the Schneider Institute for Health Policy at Brandeis University has concluded that Emergency Rooms Overcrowded Due to Poor Contact With Doctors . It seems that, especially among folks with chronic conditions like congestive heart failure, pneumonia, chronic obstructive pulmonary disease, asthma, hypertension and diabetes, regular physician contact is a big factor in reducing ED utilization and costs. Imagine that!

But other study findings point to the difficulty that fully-insured plan members have in accessing their physicians:

    “One in five ED visits were for selected low acuity conditions…such as sore throat and minor rashes. These are visits that can generally be safely treated in a physician’s office. The single most important contributor to the overall ED cost per member is the increasing proportion of members (10 percent) using the ED at least once.”

Added Blue Cross and Blue Shield Association Chief Medical Officer Allan Korn, M.D:

    “Because the privately insured account for more than half of the recent growth in emergency department utilization, there may be ways to address the problem upstream and not just focus on the supply side…This new study provides a balance in understanding supply and demand issues and also sheds an important light on potential areas where insurers and physicians can work together to provide better patient care in more appropriate and less costly settings.”

The opportunity for secure patient-physician email communication of the type that RelayHealth provides part of the solution to this problem. Perhaps a “potential area where insurers and physicians can work together” is by following the lead of Blue Shield of CA and others in establishing rules and reimbursement for such service .

HOSPITALS: Soothing Kool-Aid Served at Tenet Shareholder Meeting, by MATT QUINN

The LA Times reports that, in opposition to last year’s meeting, the mood was “calm” at Tenet’s annual shareholder meeting.

There were so few issues to discuss that, in sharp contract to last year’s “raucous showdown” with shareholders, Tenet Chairman Edward Kangas adjourned the meeting in just under an hour after answering only two questions. It seems that Tenet’s leadership is claiming that is has solved all of the company’s myriad problems in the nine months since the last meeting:

    “We were struggling in the aftermath of the company’s failed pricing strategy and its many other problems,” said Trevor Fetter, who at the time had been acting chief executive for less than two months. “It’s remarkable isn’t it?…There were a lot of people angry about a lot of things, and we, one by one, checked things off the list.”

So…apart from two perfunctory questions (one about margins in comparison to HCA and another about the stock price), all of Tenet’s problems have been “checked off the list”.

Revenue to replace improper Medicare billing scheme – solved.

Culture of executive entitlement – solved.

Huge losses – solved.

New federal investigations – solved.

Hospital divestiture – solved

Allegations of unnecessary heart procedures – solved

I could go on, but what’s the point. Everything is hunky-dory. (Reading from “talking points”:) Problems all in past; turning corner; future bright. And – evidently – shareholders at the meeting were buying it. Or maybe they were just high at the time.

HOSPITALS: Gamesmanship to avert specialty hospital classification, By MATT QUINN

A new model of specialty hospital is emerging to cherry-pick the most profitable patients from community hospitals. A group of physicians and investors has proposed building a surgical hospital in Loma Linda, California, specializing in cardiovascular and orthopedic procedures, a move critics say is intended to “cherry-pick well-insured patients needing expensive procedures,” the Los Angeles Times reports. But – by including a one bed emergency room – the proposed hospital will not be officially classified as a specialty hospital.

While the California Healthcare Association and community hospitals in the area view the motives behind the new hospital as deleterious to hospitals that must serve a broader segment of patients and procedures and “not serving the community… there to serve a segment of the community that will make their investors wealthy,” the spokesman for the proposed hospital’s investors holds a different view:

“We are not trying to be rebels. We are trying something new. This can be a model for the whole country” (Martin, Los Angeles Times, 4/26).

I assume that the country that this model of hospital will serve is one in which patients only need expensive heart and sports medicine procedures…. and hardly anyone shows up at the ER. Or perhaps the model he is referring to is one that is designed to maximize physician compensation at the detriment of public health and community access to care. You decide.

HOSPITALS: Fraud–Hospital CEO Goes to Jail, by MATT QUINN

After the – alleged – Medicare fraud at HealthSouth, Tenet, Medco, et. al… the government has held the CEO of an organization that defrauded Medicare personally responsible:

According to AIS Health, Guy Roland Seaton, the CEO of a California subacute hospital and nursing home was sentenced to 78 months in prison for bilking Medicare by overstating nursing salaries at his facility by almost $3 million.

It seems that the nursing home used fabricated time cards and phony payroll reports to inflate Medicare charges for nursing salaries:

    “A St. Luke’s employee created false time cards and payroll reports from 1996 to 1999. For example, Seaton allegedly told an employee to create phony nursing logs and nursing schedules for April 1996 and February 1997. When the Medicare fiscal intermediary, Mutual of Omaha, got a whiff that something was amiss in nursing salary reimbursement, it planned an audit. In anticipation of the 1999 audit, a St. Luke’s employee assembled a binder full of false nursing schedules and then gave it to FI auditors, the indictment says.”

While it is clear that the CEO of St. Luke’s had a direct role in the fraud, it is heartening to see that prosecutors didn’t accept the “I’m the CEO and didn’t know about the actions of a few rogue employees” so commonly used in this day and age.

While the dollar amount in this case pales in comparison to the – alleged – amounts that the other companies have been accused of defrauding the government, one can only hope that prosecutors hold corporate heads responsible for the behavior of their low-level employees (versus the other way around). But I wouldn’t hold my breath.

TECHNOLOGY: Healthcare IT–Staying the Course (or Not) by MATT QUINN

With rosy prognostications , encouragement from Leapfrog , the support of our Fearless Leader, and leading healthcare organizations pledging billions for Healthcare IT, the universal adoption of electronic medical records and CPOE seems like a done deal.

But debt and pressures on reimbursement margins could derail even the best-intentioned efforts. Baptist Health System Inc. is pulling the plug on its multimillion-dollar effort to install Siemens Medical Solutions Health Services Corp.’s Soarian software throughout its hospitals in favor of maintaining its 1989-era systems (). Hailed by then-CIO Charles Jones as a tool to” provide our clinicians with the best tools…to enhance care delivery and patient safety,” Baptist has since changed direction.

“Given the substantial investment, resource and time commitment required to participate as a Soarian early adopter, BHS … has decided to halt implementation of Soarian.”

As Sutter announces ambitious plans to spend over $1 billion on IT systems, one wonders if it will be willing to make cuts elsewhere to maintain its plans in the face of reduced reimbursement from CalPers to maintain its decade-long IT vision.

The ever-reasonable Dr. Donald Berwick, president and CEO of the not-for-profit Institute for Healthcare Improvement, calls for the government to provide web-based, downloadable (and inexpensive) IT systems to overcome the high initial capital costs of the technology and cultural change barriers to the adoption of complex integrated systems:

    “Berwick called for information standards for coding systems and interoperability among these systems. As a separate effort, the government should sponsor an electronic medical record…that anyone could download online… The record could act as a foundation if users wanted to build more expensive proprietary systems. He likened the free EMR model to the creation of the Internet, which was developed by the government and “essentially given to the public.”

With the present healthcare IT funding proposal not expected to have much of an impact on adoption, perhaps $100 m toward Berwick’s proposal would be better spent!

TECHNOLOGY: WebMD as victim of AMA activism? by MATT QUINN

There’s a long article from CNET about the problems that WebMD is facing:

While the true scope of WebMD’s “lost” or HIPAA non-compliant claims is hard to ascertain from this article, it appears that payers, providers and the AMA are taking the opportunity to shake down the company for more “hand” in negotiating rates on clearinghouse services:

According to Eric G. Brown, vice president and health care analyst at Forrester Research, “WebMD’s problems with customers seem to stem more from attitude–the arrogance of a dominant player–than from technology failures. “They’re perceived as the Microsoft of the health care sector.”

Kimberly Grose, vice president of network services and operations for Harvard Pilgrim, based in Wellesley, Mass. adds that “Thirty-five cents may not seem like much, but it adds up quickly for Harvard Pilgrim because it handles 19 million transactions annually.”

All of this portends bad news for WebMD’s Envoy business:

Forty-eight percent of the plans already exchange claims directly with at least some providers.

“While large providers and payers can bypass middlemen, Envoy is becoming a clearinghouse ‘for leftover claims’ from small providers that don’t want to be bothered by the effort of setting up direct connectivity with hundreds of payers, said Sean Wieland, a research analyst with W.R. Hambrecht.”

At least WebMD has its online content business to drive profitability… right?

TCHB NOTICE: Vacation time a-coming

Over the next two weeks I’ll be visiting my folks in the UK, and sunning myself on the beaches of Turkey, with hopefully the opportunity to get in a little ruin visiting and paragliding at Olu Deniz. I’ll be checking in very occasionally but in my absence you should see a lot from regular contributor Matt Quinn, who has very kindly offered to carry the load. Several other of my regular correspondents who you may know and love (or in some cases know and hate!) have also graciously offered to pen a piece now and again. So I’m very hopeful that this mostly solo effort will be very interesting in my absence. If you are interested in contributing a piece please email Angela Kang, who is shouldering the admin load of THCB.

And of course, while I’m gone please continue to check out the great med and health care bloggers whom I recognize in the listing to the right.

Take care and try to behave while I’m not watching! And if you really are bored, my vacation snaps should be appearing over at my personal blog.

QUALITY/MALPRACTICE: Change malpractice system to patient safety system, say Pfizer doc

It’s not that often that I agree with Mike Magee, the doctor who’s Health Politics is funded by Pfizer and tends to reflect big pharma’s viewpoints. But in his latest piece called The Road from Medical Malpractice to Safety: You Can’t Get There from Here, he lays out a convincing argument that the malpractice system directly impedes the goals of the patient safety movement. He states the core of this problem very succintly here:

    The American malpractice system, embedded in personal injury law, fundamentally undermines the patient safety movement. A head-to-head comparison tells the story. The tort system uses litigation as its lever for change. The safety movement uses quality improvement analysis. Tort law focuses on the individual. Safety focuses on the process. The tort system’s punitive and adversarial style drives information down, encouraging secrecy. The safety movement uses a non-punitive and collaborative approach, which encourages openness, transparency, and continuous improvement. With tort law, exposing oneself can end one’s career and harm one’s mental health. In the safety movement, contributing is career-enhancing and therapeutic. It may seem counterintuitive, but for medical malpractice to achieve its stated social purpose it must abandon the emphasis on a tort-based approach and embrace safety.

This has the massive implication that organized medicine’s proposed reforms to the medical malpractice system, particularly their desire for limits on pain and suffering awards, are irrelevant and counter-productive. Instead, the system needs to be replaced with a regulatory structure focused on patient safety. And by no means would that be a difficult transition for just the lawyers. It would be even more of a challenge for doctors, who would have to end what Mike Millenson has called “The Silence” of professional courtesy and expose themselves and their colleagues’ decisions to public review.

The AMA and the rest of organized medicine need to take the lead here, get off their high horse about the malpractice issue, and while they have a very sympathetic (i.e. Republican) Congress, develop some real bipartisan consensus on replacing the current tort system with a legally mandated patient safety system. That system will need real teeth to assure the public that it’s not biased in favor of physicians and providers. And of course we need a neutral public education campaign about why such a system is required; reason number one being that most malpractice currently goes on unimpeded, and this system will stop that.

HEALTH PLANS: As you may have guessed CDHP = Cost shifting

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So when I told TCHB readers about Harris’ forecast for the year a few months back, it sounded like employers were confused by the consumer-directed health plan (CDHP) hype but somehow believed that it gave them a way out of paying for first dollar coverage, and was, following the death of managed care, the next big thing in terms of saving them money. My suspicion was that employers would try to slowly move employees to HRA/HSA based high-deductible health plans, and then gradually over time–particularly if the CHDPs didn’t produce their initially savings– gradually stop funding the HRA/HSA. This would be same thing as essentially only covering catastrophic insurance for their employees. Of course that essentially means reducing their benefits.

Well the latest KFF/Mercer poll, as reported in USA Today (hat tip to Don Mccane) suggests that in forecasting that this might be a gradual phenomenon, I actually gave employers too much credit (or too little depending on your viewpoint). The report says:

    Mercer’s survey of 991 employers found that 61% would set the individual annual deductible for an HSA plan at $1,000. But 17% chose $1,500, 11% said $2,000 and 10% were above $2,000. Don’t expect employers to pay that deductible: The Mercer study also found that 39% would not put any money into the savings accounts for workers, while 24% would put in $500 a year, leaving it up to the workers to fund the rest.

In other words, the CDHP translates into direct cost shifting. When you parse the press release from Mercer (access to the survey itself is coming later), it looks like the employers, who are interested in CHDPs with a high deductible plan, are looking at it as an alternative to asking employees to pay up to 50% of the premium for a normal plan. (There’s also a lot of high-fallooting rhetoric about providing a savings plan vehicle for employees to use for health spending in their retirement years, but I don’t think any employees are really buying the notion that employers will care about them in their retirement).

    Nearly half of large employers (48%) say that a likely motivation for offering an HSA would be to provide a savings vehicle for post-retirement medical coverage. Interestingly, significant portions of both those employers who currently offer retiree medical coverage and those who do not say they are interested in this use of HSAs (53% of retiree plan sponsors and 40% of non-sponsors). More than one-fourth of employers (26%) say they would offer the plan to provide a more affordable medical plan option for employees.

In fact, I think that Mercer (which is after all selling something) is a little too gung-ho about the ability that employers will have to force CDHP and their associated costs easily onto employees. The John Gabel study in Health Affairs a few weeks back suggested that the CDHP would have a modest impact. However, it’s clear that the cost-shifting direction is set, and that health care as an automatic employee benefit is at risk in the future.

The “free-marketers” behind the HSA movement, and their opponents who believe in some kind of community-rated tax-based social insurance system, will both take cheer from the apparent demise of the employer-based health insurance system. Both sides of that argument would like to see greater visibility to the tax-payer and/or the consumer as to what all this health care they are consuming actually costs. Employer-funded third party payment (of which Medicare is an extension, by the way) has been the cause of both healthcare cost inflation, the continued existence of the uninsured and all kinds of ridiculous anomalies and inefficiencies in the market-place. When health care is regarded as a freebie provided as a part of employment, all kind of bad things result. So theoretically the employee should be happy because they have for 50 years been giving up income in lieu of their health benefits–one reason that real wages in the US have been flat for 30 years.

But, and this is a major but, there is one set of actors here who severely disagree. To repeat a poll taken last year which I described here, when offered the choice 71% of employees wanted a combination of “health coverage & lower salary” compared to only 24% wanting a “higher salary & no health coverage”. In other words, health benefits as a part of employment are very popular amongst employees.

So if employers are going to try to cut benefits severely (and let’s face it they are unlikely to be adding increased wages in their stead) you can expect to see some very grumpy employees over the coming years. And even American corporations don’t necessarily want to make their employees that unhappy when it only saves them a modest amount of their payroll costs. So I think that Gabel is right and that the way this trend will play out is by no means automatic.

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