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.
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.
With the beginning of 2014 comes another year of the great accountable care organization (ACO) debate.
Is it a model to deliver high-quality, cost-effective care and improve population health management (PHM)? Or, just a passing fad, similar to the HMOs of decades ago?
Many opinions exist, and they’ll continue to be debated, especially during an election year. One thing most of us can agree on about ACOs is they are a work in progress.
We can say with some certainty that ACOs are taking hold; look no further than their growth, which now exceeds 600 public and private ACOs nationwide with the recent addition of 123 ACOs to the Medicare Shared Savings Program. But they still beg more questions than answers. What types and sizes of hospitals are forming ACOs, and where are they located? What does the pipeline of emerging ACOs look like, and how long will their journey take? And what capabilities, investments and partnerships are essential to ACO participation? What is the longer term performance?
Who better to ask than the decision makers running the organizations that participate in an ACO?
In August of 2013 we surveyed 115 C-suite executives– primarily CEOs (43.5%), chief financial officers (17.4%) and chief operating officers (16.5%) – across 35 states to collect data on their perspectives on ACO and PHM.
Survey results support the increase in ACO popularity. According to respondents, ACO participation has almost quadrupled since spring 2012: More than 18% say their hospitals currently participate in an ACO, up from 4.8% in spring 2012. This growth is projected to accelerate, with about 50% of respondents suggesting their hospitals will participate in an ACO by the end of 2014. Overall, 3 out of 4 senior executives surveyed say their hospitals have ACO participation plans.
Since survey respondents also represent hospitals of different locations, sizes and types, we are able to obtain a broader look at current and future ACO participation and found that:
Non-rural hospitals (82.1%) are most likely to participate in an ACO overall, followed by hospitals in an integrated delivery network (81.1%).
The lowest rates of projected participation are among rural hospitals (70.7%) and standalone hospitals (72.6%).
Large hospitals are moving more quickly, as 30.8% said they’d be part of an ACO by the end of 2013.
And though they’re equally as likely as large hospitals to ultimately participate in an ACO, small hospitals say they require additional time, with 48.6% planning to join in 2014 or 2015.
But some providers have been more deliberate and cautious about when they start their ACO journey. The pace of ACO adoption has been slower than originally anticipated 18 months ago, when more than half of executives predicted their systems would create or join an ACO by the end of 2013. Current survey results show that about 1 out of 4 will meet that projection.
I was just recently in Guiyang, the capital of the Guizhou province in China and had a chance to visit the Huaxi District People’s Hospital (HDPH), one of the largest “secondary” hospitals in the province.
Despite being in one of the poorest regions of China, the hospital has more money than it knows what to do with (so says its leadership) and is planning further expansion. The source of its wealth? A growing middle class that wants more healthcare services and has the ability to pay for it.
Background on hospitals in China
There are approximately 2853 counties in China across 33 provinces. Each county has a county hospital, a government owned facility that serves the people of that community. When the patient is too complicated to be managed there, he or she is transferred usually to a secondary hospital. Patients who need an even higher level of care are sent to the regional tertiary care hospital. The gatekeeping system is weak – one need not start at the county hospital – and in fact, a majority of the inpatients at GPH came there directly.
A few years ago, China launched a major health reform with the goal of getting to universal coverage. They got close and nearly every citizen now has health insurance that covers at least part of the costs of their care. The insurance has substantial co-pays and doesn’t cover more expensive drugs and tests. What does this mean for a hospital like HDPH? About 40% of their revenues came from insurance.
And, despite being a government hospital, only about 5% of revenues came from the government. The rest? From the patients themselves. This revenue mix is supposedly pretty typical of county and secondary hospitals across the nation. Out of pocket spending remains substantial, despite universal health insurance. In fact, in absolute dollar terms, patients are paying about as much out of pocket now as they were before social insurance kicked in.
Huaxi District People’s Hospital
Outpatient clinics, where a typical appointment might last 2-3 minutes, are by far the biggest source of admissions to the hospital. But the hospital also has an ER. Actually, two: a Medicine ER and a Surgery ER. The patient gets to choose. Unsure about which you need? There is an “Enquiry” nurse who can help. I peppered the one on duty with various clinical scenarios and was impressed with the speed and confidence with which she made decisions.
The flow is simple: you choose your ER, you register, pay the fee in cash, and go inside to wait.
The Massachusetts Medical Society may be the first to notice that Meaningful Use EHR mandates favor large providers and technology vendors. Control over the Nationwide Health Information Network sets the stage for how physicians refer, receive decision support, report quality, and interact with patients. State health information exchanges and policy makers are caught in the cross-fire over health records interoperability. Are the federal regulations over Stage 2 being manipulated to put physicians and the public at a disadvantage?
On Dec. 7, the Massachusetts Medical Society took what might be the first formal action in the nation. A resolution stating:
“That the Massachusetts Medical Society advocate for a more open, affordable process to meet technology mandates imposed by regulations and mandates; e.g., that all Direct secure email systems, mandated by Meaningful Use stage 2, including health information exchanges and electronic health record systems, allow a licensed physician to designate any specified Direct recipient or sender without interference from any institution, electronic health record vendor, or intermediary transport agent.”
Meaningful Use is intended to support health reform by promoting interoperability and innovation in health service delivery. The Affordable Care Act, Obamacare, is fundamentally a free-enterprise model without single payer or even a public option. Obamacare depends on the market for eventual cost controls and sustainability. Meaningful Use is regulation designed to enable market-driven health reform by reducing interoperability barriers.
Although Meaningful Use regulations have already handed out $17 Billion to drive “voluntary” adoption of interoperable electronic health records, meaningful interoperability is still elusive. Meanwhile, the doctors are chafing about Meaningful Use intrusions and policymakers worry that the regulations will actually increase costs.
The most commonly heard comment in healthcare these days is that we have to move from paying for volume to paying for value. While it may sound trite, it also turns out to be pretty true. Right now, most healthcare services are paid for on a fee-for-service basis – with little regard for the quality of that service. We clearly need to move towards value-based payments (sometimes referred to as pay-for-performance or P4P).
Although a few folks remain skeptical about whether VBP/P4P can work (as though our pay for volume strategy is working out so well), asking whether we should pay for volume versus pay for quality no longer seems like a particularly interesting question.
The far more compelling and difficult question is how best to pay-for-performance? As I have written before, we need bold experiments with new payment models that employ three key principles: putting real money on the table, focusing on outcomes, and keeping the reward system simple (i.e. the better you do, the more you should get).
Despite these disappointing findings, the U.S. Congress, in crafting the Affordable Care Act, modeled VBP closely on HQID. The incentives in the program are small (currently at 1.25% of total Medicare payments) and still more heavily weighted towards process measures than outcomes.
The key question for VBP is whether it will work – whether patients will be better off because of it. We don’t know and realistically, we won’t for another year or so.
But what we do know is that two years into the program, certain hospitals seem to be doing well and others, not so much. Yes, the incentives are small and my guess is that any impact will be very modest as well. But, it’s still worth taking a look at how different types of hospitals are faring under VBP.
Recently I was asked to intervene on behalf of a patient who, trapped by circumstance, was paying off an enormous bill for a lithotripsy procedure. What I uncovered wasn’t news, but it drove home how egregious the current system can be, why it so badly needs to be fixed, and how the Affordable Care Act (ACA) helps move us in the right direction.
The patient had health insurance through her husband’s job. But it was cancelled just after the hospital validated it, because the employer failed to pay the premium. The procedure was performed, and the patient was charged as “self-pay.”
If Medicare had been the payor in this case, the hospital’s total reimbursement would have been a little less than $2,000. But the lithotripsy and associated costs were billed at $33,160, or just under 17 times the Medicare rate. After the patient applied for financial assistance, a 30% contractual adjustment was applied, reducing her bill to just under 12 times the Medicare rate.
If the health system had asked her to pay 190 percent of Medicare – typically the upper end of commercial insurance rates – her bill would have been about $3,800. By the time I was contacted, the patient and her husband – responsible people trying to make good on their debt – had already paid the health system $5,700 or 285 percent of Medicare. The hospital insisted they owed an additional $16,000.
I laid this out in a letter to the CEO and, probably because he wanted to avoid a detailed description of this unpleasantness in the local paper, he relented, zeroing out the patient’s balance. No hospital executive wants to be publicly profiled as a financial predator.
But while that resolved that patient’s problem, it did nothing to change the broader practice. Most US health systems, both for-profit and not-for-profit, exploit self-pay patients in this way. Worse, not-for-profit health systems legally pillage their communities’ most financially vulnerable patients while getting millions of dollars in tax breaks each year for providing charity care.
Aggressive collections procedures, including home liens, are widespread.
Some states have strictly limited what hospitals can charge low income patients. In California, uninsured patients with incomes below 350 percent of the federal poverty level (FPL) – $82,425 in 2013 for a family of 4 – can be charged no more than Medicare rates. In New Jersey, patients within 500 percent of the FPL cannot be charged more than 115 percent of Medicare.
Section 9007 of the ACA took effect last year and prohibits excessive pricing for self-pay patients, and would revoke a charitable hospital’s tax-exempt status if it charges them more than it charges for insured patients. The language is ambiguous, conceivably allowing health systems to circumvent the law’s intent. But the spirit is clear. To keep their not-for-profit tax status and perks, health systems must stop taking advantage of self-pay patients.
In my previous blog, I made the argument that whatever strategy we use to improve care in hospitals will not be implemented and executed well without proper focus by hospital leadership. So, it is in this context, that we recently published some pretty disappointing findings that are worth reflecting on.
We examined the pay of CEOs across U.S. hospitals and found that some CEOs got paid a lot more than others. This was not surprising. CEOs of larger, urban, teaching hospitals get paid a lot more than CEOs of small, rural, non-teaching institutions. But the disappointment was around quality: we found no relationship between a hospital’s quality performance and the pay of the CEO. Holding size, teaching, and other factors constant, what was the pay of CEOs of hospitals with high mortality rates?
About the same as CEOs of hospitals with low mortality rates. What about other quality measures? Most of them didn’t really seem to matter, with the exception of patient experience, which correlated nicely with CEO compensation. It seems that when setting CEO compensation, patient outcomes are not a big part of the discussion. How could this be, and why does it matter?
How you set incentives for senior managers says a lot about your priorities. Boards generally set the salary for their CEOs and they clearly reward patient satisfaction scores. That’s good. They also seem to reward the things that build hospital reputations: having the latest technology such as a PET scanner or academic status. But are boards rewarding CEOs based on mortality rates or adherence to basic quality metrics? Not so much. Why not? I’ve spoken to a lot of board chairpersons over the years and the answer is not that they don’t care. Most boards want to reward quality and believe that they do.
The problem is that most board members lack sufficient expertise on quality metrics and can’t decipher, from the large number of quality metrics, which ones are important (like mortality rates) and which ones are not. Hamstrung, they focus on satisfaction but also end up rewarding things that feel like proxies for quality, such as having the latest technology. And here’s the part that’s frustrating – our national efforts on quality measurement and improvement are not helping. We seem to have done very little to prioritize what’s really important, and shine a light on them.
So what do we do to move forward? Some states have started requiring that boards undergo training in quality. Medicare, as a condition of participation, could certainly require that boards (or at least some members thereof) show a degree of expertise with quality. I like these ideas but worry that training programs would themselves be of variable quality, and for some boards it would become an onerous requirement without achieving real gains in expertise.
Of course, if we really want to help boards be more effective and engage healthcare leaders, the biggest thing that we could do is actually reward hospitals, in a meaningful way, based on quality. Yes, we have the value-based purchasing program, and it is well-intentioned. But, as I’ve written before, it has several big problems. First and foremost: the incentives are very weak and there is little reason to believe it will have a meaningful impact on patient outcomes. Second, the measures are diffuse – we have too many of them, some of which matter (mortality) and many which don’t in the absence of the appropriate clinical context (checking the ejection fraction on a heart failure patient). It’s hard for hospital boards to really get a clear signal on what matters if they aren’t seeing it clearly and consistently from national leaders on quality.
Thanks to the flood of new data expected to enter the health field from all angles–patient sensors, public health requirements in Meaningful Use, records on providers released by the US government, previously suppressed clinical research to be published by pharmaceutical companies–the health field faces a fork in the road, one direction headed toward chaos and the other toward order.
The road toward chaos is forged by the providers’ and insurers’ appetites for categorizing us, marketing to us, and controlling our use of the health care system, abetted by lax regulation. The alternative road is toward a healthy data order where privacy is protected, records contain more reliable information, and research is supported or even initiated by cooperating patients.
This was my main take-away from a day of meetings and a panel held recently by Patient Privacy Rights, a non-profit for whom I have volunteered during the past three years. The organization itself has evolved greatly during that time, tempering much of the negativity in which it began and producing a stream of productive proposals for improving the collection and reuse of health data. One recent contribution consists of measuring and grading how closely technology systems, websites, and applications meet patients’ expectations to control and understand personal health data flows.
With sponsorship by Microsoft at their Innovation and Policy Center in Washington, DC, PPR offered a public panel on privacy–which was attended by 25 guests, a very good turnout for something publicized very modestly–to capitalize on current public discussions about government data collection, and (without taking a stand on what the NSA does) to alert people to the many “little NSAs” trying to get their hands on our personal health data.
It was a privilege and an eye-opener to be part of Friday’s panel, which was moderated by noted privacy expert Daniel Weitzner and included Dr. Deborah Peel (founder of PPR), Dr. Adrian Gropper (CTO of PPR), Latanya Sweeney of Harvard and MIT, journalist Sydney Brownstone of Fast Company, and me. Although this article incorporates much that I heard from the participants, it consists largely of my own opinions and observations.
Forget for a moment the familiar scenes of action and outraged reaction that are playing out in our long-running national debate over how best to provide access to health care for every American. Instead, ask one simple question: what happens in the doctor’s office or hospital once access is achieved.
I set out to write a book addressing that question almost twenty years ago. I thought myself well qualified: I’d written about health care for a decade for the Chicago Tribunewhile receiving various awards and other recognition. But it didn’t take long for a painful realization to set in of how naïve I really was.
Digging through hundreds of studies, articles and other first-hand sources stretching back for decades, I was stunned to discover that repeated evidence of unsafe, ineffective, wasteful and downright random care had had no effect whatsoever on how doctors treated patients. Literally none. Moreover, the few professionals who understood this truth couldn’t talk about it in public without endangering their careers or engendering vitriol from peers.
From ulcers to urinary tract infections, tonsils to organ transplants, back pain to breast cancer, asthma to arteriosclerosis, the evidence is irrefutable. Tens of thousands of patients have died or been injured year after year because readily available information was not used – and is not being used today – to guide their care. If one counts the lives lost to preventable medical mistakes, the toll reaches the hundreds of thousands.
The only barrier to saving these lives is the willingness of doctors and hospital administrators to change.
Demanding Medical Excellence came out in October, 1997. What progress has been made since then, and where we have fallen short? I address that question in a short article, “The Long Wait for Medical Excellence,” in the October, 2013 issue of Health Affairs. The purpose of this blog entry is to recap some of what’s said there (for you non-subscribers) and to add a few impolite observations that don’t jibe with the rules of a peer-reviewed journal.