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Tag: Costs

For Hospitals and Health Systems: Strategies for Doing More with Less

The conversation has changed.

The old conversation: “You cost too much.”

“But we have these sunk costs, patients who can’t pay … ”

“OK, how about a little less then?”

The new conversation: “You cost too much. We will pay half, or a third, of what you are asking. Or we will take our business elsewhere. Starting now.”

“But … but … how?”

Exactly: How will you survive on a lot less money? What are the strategies that turn “impossible” to “not impossible”?

New Strategies
The old conversation arises from the classic U.S. health care model: a fully insured fee-for-service system with zero price transparency, where the true costs of any particular service are unknown even to the provider. The overwhelmingly massive congeries of disjointed pieces that we absurdly call our health care “system” rides on only the loosest general relationship between costs and reimbursements.

It’s a messy system littered with black boxes labeled “Something Happens Here,” full of little hand waves and “These are not the droids you’re looking for.”

With bundling, medical tourism, mandated transparency, consumer price shopping, and reference pricing by employers and health plans, we increasingly are being forced to name a price and compete on it. Suddenly, we must be orders of magnitude more precise about where our money comes from and where it goes: revenues and costs.

We must find ways to discover how each part of the strategy affects others. And we need some ability to forecast how outside forces (new competition, new payment strategies by employers and health plans, new customer handling technologies) will affect our strategy.

Key Strategy Questions
For decades, whenever some path to profit in health care has arisen (in vitro fertilization, urgent care, retail, wellness and the others) most hospitals have said as if by ritual, “That is not the business we are in.” As long as we got paid for waste, few health care organizations got serious about rooting it out.

And most have seemed content with business structures that put many costs and many sources of revenue beyond their control.

In the Next Health Care, the key strategy questions become:

Commentology: Actually, High-Tech Imaging Can Be High-Value Medicine

Our comments regarding this interesting blog,  and the comments to the blog, may seem tangential to the author’s points.

The blog and comments point, we think, to a confusing set of principles being considered, perhaps, out of context?

Those comments range from: ACOs will lead to better figuring out what is best (impossible) –  to mismatched information regarding a specific clinical case (reasonable).  What is striking is that we have medical students worrying about costs of care.

Instead, shouldn’t we be teaching them to understand the value of information for decision-making? Shouldn’t we be teaching them the concepts of co-dependent testing leading to all tests being less useful than we think?

Shouldn’t we be teaching students the concepts of decision-analysis, and thresholds, and patient’s being involved in the decisions? Shouldn’t we be teaching that it is better to know than to think we know? Shouldn’t we be doing studies rather than scratching at the “tragedy of the commons” (so many physicians feasting on the grassy fields of a sick patient)?

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The ACO Hypothesis: What We’re Learning

Last month, the Center for Medicare and Medicaid Services (CMS) reported first-year results from the Medicare Shared Saving Accountable Care Organization Program (MSSP).

As noted in a previous post, shifting to an accountable care model is a long-term, multi-year transition that requires major overhauls to care delivery processes, technology systems, operations, and governance, as well as coordinating efforts with new partners and payers.

Participants in the MSSP program are also taking much more responsibility and risk when it comes to the effectiveness and quality of care delivered.

Given these complexities, it is no surprise that MSSP’s first year results (released January 30, 2014) were mixed. The good news? Of the 114 ACOs in the program, 54 of the ACOs saved money and 29 saved enough money to receive bonus payments.

The 54 ACOs that saved money produced shared net savings of $126 million, while Medicare will see $128 million in total trust fund savings.

At the time, CMS did not provide additional information about the ACOs with savings versus those without.

While a more complete understanding of their characteristics and actions will be necessary to understand what drives ACO success, the recent disclosure of the 29 ACOs that received bonus payments allows us to offer some preliminary interpretations.

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Actually, High-Tech Imaging Can Be High-Value Medicine

Lub-SHHRRR. Lub-SHHRRR. Lub-SHHRRR.

“Can you hear it?” she asked with a smile. The thin, pleasant lady seemed as struck by her murmur as I was. She was calm, perhaps amused by the clumsy second-year medical student listening to her heart.

“Yes, yes I can,” I replied, barely concealing my excitement. We had just learned about the heart sounds in class. This was my first time hearing anything abnormal on a patient, though it was impossible to miss—her heart was practically shouting at me.

Her mitral valve prolapse—a fairly common, benign condition—had progressed into acute mitral regurgitation. She came to the hospital short of breath because her faulty valve was letting blood back up into her lungs.

Though it was certainly frightening, surgery to fix the valve could wait a few weeks. But before doing anything, the surgical team wanted a picture of the blood vessels in her heart.

If the picture showed a blockage, the surgeons would have to perform two procedures: one to fix the blockage, and another to fix her valve. If her vessels were healthy, though, the surgeons could use a simpler approach focused just on her valve.

So she came to the interventional cardiologist who was teaching me for the day. Coronary angiograms are the interventionalists’ bread-and-butter procedure, done routinely to look for blockages and to guide stent placement. They involve snaking a catheter from the groin or arm through major blood vessels and up to the heart.

Under fluoroscopy (like a video X-ray), the cardiologists shoot contrast medium into the arteries, revealing the anatomy in exquisite detail.

The images are recorded electronically and accompanied by the cardiologist’s interpretation for anyone else who opens her medical record.

Though routine, these catheterizations aren’t trivial. Whenever you enter a blood vessel, you introduce the risk of bleeding and infection. Fluoroscopy is radiation, and contrast medium can damage the kidneys. And let’s not forget cost—reimbursing the interventional cardiologist, a radiology technician, and nursing staff costs Medicare almost $3,000 per case.

So I asked the cardiologist if such an invasive approach was really necessary.

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How Mayo Clinic Is Using iPads to Empower Patients

Throughout the world, companies are embracing mobile devices to set customer expectations, enlist them in satisfying their own needs, and get workers to adhere to best practices. An effort under way at the Mayo Clinic shows how such technology can be used to improve outcomes and lower costs in health care.

Defining the care a patient can expect to receive and what the road to recovery will look like is crucial. When care expectations are not well defined or communicated, the process of care may drift, leading to unwarranted variation, reduced predictability, longer hospital stays, higher costs, poorer outcomes, and patient and provider dissatisfaction.

With all this in mind, a group at the Mayo Clinic led by the four of us developed and implemented a standardized practice model over a three-year period (2010-2012) that significantly reduced variation and improved predictability of care in adult cardiac surgery.

One of the developments that germinated in that effort was the interactive Mayo myCare program, which uses an iPad to provide patients with detailed descriptions of their treatment plans and clinical milestones, educational materials, and a daily “To Do” list, and to report their progress and identify problems to their providers.

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Reflecting on Health Reform–Narrow Networks: Boon or Bane?

Some health plans sold through the Affordable Care Act’s (ACA) health insurance marketplaces use “narrow networks” of providers: that is, they limit the doctors and hospitals their customers can use.

Go to Doctor A or Hospital A and the plan will pay all or most of the bill. Go to Doctor B or Hospital B, and you may have to pay all or most of the bill yourself.

The narrow network strategy emerged long before the ACA, during the managed care era in the 1990s, and insurance companies and large, self-insured employers have used narrow networks ever since to control health care costs.

In fact, for the first time, the ACA creates new consumer protections requiring that insurers provide a minimum level of access to local providers. A number of states have exceeded these federal standards using their discretion under the new law.

Nevertheless, some consumer advocates and ACA critics still find narrow networks objectionable. Narrow networks mean that some newly insured people are no longer covered for visits to previous providers, or, if they didn’t have a doctor before, are limited in their new choices. Not infrequently, narrow networks exclude the most expensive doctors and hospitals in a community, including some specialists and academic health centers.

More expensive doctors and hospitals are not necessarily better, but for patients with a rare or complex health problem, such restrictions can be problematic.

Welcome to the world of competition in health care, because that is what narrow networks are about. Narrow networks are used by competing plans to control health care costs, and perhaps improve quality as well. In fact, if you don’t like narrow networks, you’re saying, in effect, that you don’t like competitive solutions—as least under current market conditions—to our health system’s problems.

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Bigger Hospitals Mean Bigger Hospitals with Higher Prices. Not Better Care.

Hospitals are busily merging with other hospitals and buying up groups of doctors. They claim that size brings efficiency and the opportunity to deliver more “value-based” care — and fewer unnecessary services.

They argue that they have to get bigger to cut waste. What’s the evidence that bigger hospitals offer better value? Not a lot.

If you think of value as some combination of needed services delivered for the right price, large hospitals are no better than small hospitals on both counts.

The Dartmouth Atlas of Health Care and other sources have shown time and again that some of the biggest and best-known U.S. hospitals are no less guilty of subjecting patients to useless tests and marginal treatments.

Larger hospitals are also very good at raising prices. In 2010, an analysis for the Massachusetts attorney general found no correlation between price and quality of care.

study published recently in Health Affairs offered similar results for the rest of the country: On average, higher-priced hospitals are bigger, but offer no better quality of care.

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How Much Is Health Care Worth?

Higher education has a relative value problem.

The product of higher education is widely embraced in the United States: 20 million students attend our 3000 schools of higher learning.

Per the Bureau of Labor Statistics, a college grad can expect to earn 1.7-2.7 times the lifetime income of a student who finished high school and entered the workforce.

A college degree provides higher employment security: in 2012, the unemployment rate for college grads was 4.5% versus 8.3% for those with high school diplomas.

Colleges play a key role in our local communities—for economic development, workforce development and as a major employer.

And a recent Pew Research survey (February, 2014) found 9 of 10 with college degrees believe the investment has or will pay off.

Higher education does not have a value problem: its value proposition against the option of not getting a degree is solid.

But higher education has a relative value problem.

Since 1985, the price of higher education has increased 538% versus medical costs (+286%) and the consumer price index (+121%).

Stated differently, annual tuition increases have been 7.4%–more than healthcare (5.8%) housing (4.3%) and family income (3.8%). Last year, students and families paid $154 billion in tuition and fees to attend college: 60% borrowed $106 billion to help pay their bill.

In the end, 38% enrolled in four-year degree programs and 21% in two-year degree programs will not graduate on time. One in seven with student loan debt will be delinquent on their debt, and student loan indebtedness, now at $1 trillion, will shortcut household discretionary spending that might otherwise be injected in our economy. And incomes for college grads have stagnated for the past 12 years.

The perplexing question facing higher education is this: does a college degree pay? And more precisely, what is relative value of each institution’s offering given alternatives?

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What About the Poor?

Hospitals need to overhaul their processes so they can help the un- and under-insured stay healthy.

Many people running health care institutions tell me that they have been fighting the fight, learning to be nimble, transforming their cultures, making big changes as the landscape rearranges itself like a really bad day along the San Andreas Fault.

But in comparison with the actual scale of the problems, most of the business models and strategies in health care have been sleeping like overfed dogs. It’s wake-up time in America.

Nowhere is the problem defined more clearly than in this question: How can we deal with the tens of millions of new Medicaid recipients, the tens of millions of still-uninsured poor, and the increasing numbers of the underinsured?

Today’s hospital executives formed their careers around the “volume” question: “How do we get more and better-paying customers into and through our system?”

This is a different era. Most markets do not have enough medical care to go around, between an aging population, expanded Medicaid in 25 states, and expanded numbers of insured in all states.

When there is not enough of what you are selling to go around, operating inefficiently leads to choking on volume. In order to survive under any business model we must get the volume down and the value up.

First: What can we expect in the coming years?

The Future of Medicaid, the Uninsured and the Underinsured
Medicaid numbers are astonishing if you are not used to them. Even before the projected expansion, at some time during an average year about 72 million people, close to a quarter of all Americans, are on Medicaid. At any given moment, it’s over 50 million. Medicaid is an open-ended program:

When more people are eligible, or sick, or have more complex diseases, the states and the federal government pay more.

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The Black Box at the Center of Health Economics

When Michael injured his knee, he did what any responsible person would do.  He was not incapacitated, and though the knee was painful and swollen, he could get around pretty well on it.  So he waited a few days to see if it would get better.  When it didn’t, he saw his primary care physician, who examined it and quite reasonably referred him to an orthopedic surgeon.  The orthopedic surgeon considered ordering an MRI of the knee but worried that insurance would not cover a substantial portion of the $1,500 price tag, so he suggested a less expensive alternative: a six-week course of physical therapy that would cost only $600 – a quite responsible course of action.

At the end of this period of time, Michael was still experiencing pain and intermittent swelling.  The orthopedic surgeon made another quite responsible decision and ordered the MRI exam, which showed a torn meniscus.  The orthopedic surgeon could have recommended arthroscopic surgery, which would have earned him a handsome fee and generated revenue for his physician-owned surgery center.  Instead he again acted quite responsibly, advising Michael that the surgery would actually increase the pain and swelling for a time and probably not improve his long-term outcome.  Based on this advice, Michael declined surgery.

Though everyone in this case proceeded responsibly, the ultimate outcome was inefficient and costly.  Many factors contributed, but perhaps the most important was the fact that Michael’s physician outlined choices based on an inaccurate understanding of the costs associated with his recommendations.  The orthopedic surgeon thought that the cost of six weeks of physical therapy was 60% less than the MRI.  In fact, however, the actual payment for the MRI from the insurance company would be only $300, not the “retail” price of $1,500.  What appeared to be the less expensive option was actually twice as expensive, and it delayed definitive diagnosis by six weeks.

This story is emblematic of a larger problem in contemporary healthcare.  No one – not the patients, the physicians, the hospitals, or the payers – really understands in a thorough way the true costs of their decisions.  After receiving care, patients routinely receive by mail multi-page “explanations of benefits” that show huge differences between list prices and actual payments.  Most find it baffling to try to determine who is paying how much for what.  Physician practices and hospitals get calls every day from panicked patients who believe that they are being billed for exorbitant costs, when in fact most or all of the charges will be paid by insurance at a huge discount.

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