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HOSPITALS: Emergency departments and how hospitals make money. With UPDATE late afternoon 4/6/04

There’s a very interesting new(ish) and counter-intuitive web-only article out in Health Affairs from USC and RAND health economist Glen Melnick about emergency department (ED) capacity in California. The conventional wisdom is that emergency departments at hospitals are flooded with the uninsured, they on average lose money on their patients, and the prevailing trend is for the hospitals to close their EDs if they can get away with it. Melnick’s team looked at a decade’s worth of data from the state and found that:

    ED capacity, measured in terms of beds, expanded 20 percent over the twelve-year period, while the population rose 16.3 percent and visits increased 13.4 percent. As a result, ED beds per 100,000 population grew over the period. . . the percentage of hospitals with an ED at the beginning and end of each of the six-year periods. . . fell only slightly.

Although the total number of EDs declined, most of those closings were by-products of total hospital closings rather than specific closings by hospitals getting out of the market. So why was the conventional wisdom wrong? Not because hospitals made money on their ED “outpatient” visits–they lost money on their EDs on average. How come they then weren’t closing EDs in droves, with appalling consequences for access to health services for the poor and the availability of emergency care for all of us?

Two main reasons. The big hospitals that couldn’t politically afford to close their EDs because they are a major source of outpatient care in their communities (poster-child here being LA County of course) received enough money via the DSH program in Medicaid to stay alive. The rest of them were making so much money through providing inpatient services to the people admitted via the ED which accounted for 40% of all admissions, that they could afford to run the ED as a loss leader. And of course, though it’s politically incorrect to say it, hospitals have the ability to discover the insurance status of those coming in the ED in advance of admitting them to an inpatient bed.

In other words, the ED is being used as a quasi-screening program. Hospitals run these screening programs all the time trawling for people in the community who might legitimately need their services. CPM is well regarded consumer marketing company that helps them do just that. Hospitals make so much money on admitting a well-insured patient for an invasive procedure that it’s worth the cost of screening many “negatives”, in say cardiology, many times over if it generates a well-paying “positive” admission. Of course hospitals are also interested in reducing their levels of bad debt from non-paying ED patients, and this delicate balance of providing care to the needy and at the same time getting hold of the well-paying admission is being played out across the country every day.

Interestingly enough, several other loss-leaders also exist in the hospital world. As this article makes clear, hospitalists don’t generate enough fees to cover the cost of employing them but they improve the throughput of a hospital by getting DRG-based patients to discharge earlier, and increase admissions by improving the lives of admitting physicians. So overall hospitalist programs improve the hospitals bottom line and so are growing. So like the ED situation, any one aspect of the economics of a hospital must be assessed in the overall scheme of how hospitals make money. And the way hospitals make money is by filling their key service lines with patients that need services and have decent insurance to pay for it.

UPDATE: ED doc Doug Evans points out to me that the response article to the Melnick study from ACEP President Wes Fields shows that most of the bed growth related to ED admissions is in the wealthier suburban hospitals, while the inner city hospitals have EDs that are increasingly over-crowded and offering poor primary care. Ambulance diversions and other mal-effects of ED overuse are on the rise according to Kellerman, Duaner, and Siegel. None of this means that, given the hand that they’ve been dealt, hospitals shouldn’t try to make money via their EDs. It also doesn’t mean that we ought to have a health “system” that doesn’t provide insurance coverage to 15% of the population and dumps that care on a handful of inner city hospitals. I think Melnick agrees.

INDUSTRY: Consolidation in the health care sector

Today looks like a big day for more consolidation. Big drug chain CVS is getting bigger by buying part of the Eckerd chain owned by JC Penny. The other part is being bought by Canadian chain Jean Coutu Group.

In the health plan sector Oxford Health Plans is up 10% up on strong rumors that it will be bought by Wellchoice, the for-profit company that used to be Empire Health Plans, the New York City Blues plan. This is an interesting one, as it may be the first time that a Blues plan has gone outside the Blues system for an aquistion. Almost every other Blues plan has grown by aquiring other Blues, with the Anthem/Wellpoint merger being the latest example.

PERSONAL/QUALITY: Knee surgery update

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So I had arthroscopic surgery at a Healthsouth facility from a Brown & Toland surgeon on Friday. The admin staff and the nursing staff were superb, and the majority of my information from the physician’s office had in fact got over to the surgi-center, so there was no need for me to repeat everything. They also allowed me to not pay anything up front, as I explained that I thought my previous office visits and MRI would take up all my deductible and out of pocket. I even have a new MSA (should be HSA) card from the "MSA Bank" which I should be able to use to make those payments tax-free. So I am now one of those health care consumers I’ve been warning you about!

The surgery was in some ways rather fun, particularly as it was minor enough that I was able to be woken up after a quick general anesthetic and was able to watch the monitor as it happened. I could see a huge drill blasting the odd bit of white scar tissue, and although there was a cloth barrier stopping me from seeing the surgeon, I was even able to get the nurse to bring it down by joking that I was watching a tape from another surgery. But there he was slicing/drilling away, and describing to me what he was doing. I’ve since told several people about this but none of them seemed to be anything other than queasy.

The most amazing thing is that although I had a couple of Percocet in the facility, I have taken none of the Vicodin I thought I’d need over the past 48 hours. The knee is pretty swollen, but I can already walk OK–it’s stiff but not painful. Hopefully in a couple of weeks I’ll be better than before. I’ll keep you in touch, but going through this experience is always interesting for those of us in the health care business who don’t often see things from the "business" end!

By the way, if you don’t know the history, the surgery was follow up to much more significant knee surgery 2 years ago when I had ACL/PCL grafts following a violent snowboarding accident.

PERSONAL: Back on the slab

By the time most of you read this, I’ll be on the table having yet more knee surgery (An arthroscopy to repair cartilage and scar tissue following my ACL/PCL repair 2 years ago). I’ll report back Monday about how it went, and hopefully I’ll get a last snowboarding run in before all the snow melts.

QUALITY: Malpractice Jury-Award Median Up Slightly

A new study out from Jury Verdict Research shows that the median malpractice award for 2002 was stuck at $1m–no real increase from 2001. The proportion of successful cases brought against doctors went up slightly but was still only 42%. This is though up from 29% in 1996. Although the denominator is not in this report, the total amount awarded was estimated at $4.2 billion in 2002 according to these data from the National Practitioner Databank. The figures disagree from Jury Research’s in that in 2002 the National Practitioner Databank estimated that there were 452 awards for a median of $286K and a mean of $506K (implying some 650 odd cases that made it to court and were won by the defendant physician). But in any even the vast majority of the $4.2 billion handed over was in settlements, of which there were 14,852 in 2002. In other words around 7% of cases make it to court, and around 15,000 cases end up with money paid to the plaintiff each year.

Given that there are around 550,000 practicing doctors in the US, this means that roughly 3% are in some way being successfully sued for malpractice each year. When you look at it that way, it’s not that big a problem. (Cue barrage of email, no doubt!).

POLICY/QUALITY: Antibiotics overuse as an emerging public health threat

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THCB is now so influential that people are seeking to advertise on it. Really! (Stop that sniggering). I did get a message from John Riley at Keep Antibiotics Working to ask if he could advertise to my readers. As this site is designed to produce neutral but opinionated reporting (that advertises only me and my services as a by-product) and also I’m not set up to take advertising, I declined. But after I saw what the site was about and read this post from Family Medicine Notes about the dangers of antibiotic overuse in humans, I thought that it would be worth giving John some space to explain why antibiotic overuse in animals is such a health and policy problem. So here’s his argument:

    Over the last 60 years, effective antibiotics have turned bacterial infections into treatable conditions, rather than the life-threatening scourges they once were. The effectiveness of many life-saving antibiotics is, however, waning. Health experts have deemed the rise in antibiotic resistance a public health crisis. Everyone is at risk from antibiotic-resistant infections, but children, the elderly, and people with weakened immune systems are particularly vulnerable.

    The overuse of antibiotics is to blame. A major source of this overuse is routine use of antibiotics as feed additives for livestock and poultry–not to treat disease, but instead to promote growth and compensate for crowded, stressful, unsanitary conditions. The Union of Concerned Scientists estimates that 70% of all antibiotics in the U.S. are used as feed additives for pigs, poultry and cattle. In June 2001, the American Medical Association went on record opposing the routine feeding of medically important antibiotics to livestock and poultry (i.e., “nontherapeutic” use).

    Antibiotic use in animal agriculture has been linked definitively to human bacterial infections resistant to antibiotics. Mounting evidence suggests that widespread overuse of agricultural antibiotics also may be contaminating surface waters and groundwater, including drinking water sources in many rural areas. Nonetheless, agribusiness and the pharmaceutical industry are fighting hard to thwart restrictions on the use of antibiotics in agriculture.
    While medical use of antibiotics is a major contributor to the emergence of antibiotic resistance, agricultural uses also pose a significant problem since they promote the development of resistant bacteria that can reach humans through several different pathways – directly via contaminated food or indirectly via environmental contamination.

    In an effort to curb the spread of resistant bacteria and protect the efficacy of antibiotic drugs, the “Preservation of Antibiotics for Medical Treatment Act” (S. 1460/H.R. 2932) is bipartisan legislation pending in both houses of Congress that would phase out the routine use of eight classes of medically important antibiotics in animal agriculture, unless their use can be shown not to pose a threat to human health. The legislation would continue to allow antibiotic use for treating sick animals and preventing the spread of documented illnesses in a flock or herd. Over 325 organizations around the country have endorsed this legislation, including 83 professional health groups, such as the American Medical Association and the American Public Health Association.

    Keep Antibiotics Working, a coalition of health, consumer, agricultural, environmental and other advocacy groups with over 9 million members, is seeking individuals who have experienced an antibiotic-resistant illness to share their stories and help protect the effectiveness of antibiotics. For more information, please visit www.KeepAntibioticsWorking.com.

POLICY: Just one more poll showing that Medicare bill is a loser for Bush

I tend to believe that the Adminstration wouldn’t have tried quite so hard to pass PDIMA had they known that 55% of seniors would dissaprove and only 35% approve of their handling of Medicare a mere 100 days later.

This matters of course only because Florida and Pennsylvania are the two biggest swing states in the November election, both were very close last time (dead heat in Florida or fraud at the polls–take your pick), and whoever wins them probably wins the Presidency. In the 2000 census, the over-65s make up 12.4% of the population. In Florida they make up 17.6% of the population and in Pennsylvania, 15.6%. Yes, those are the two highest of any states. Seniors vote in greater proportion than any other age group and they vote about health care more than any other issue. Oh, and they hate drug companies, or at least don’t trust them any more. Prepare for 6 more months of some variant of the phrase "drug company written Medicare give-away" from Senator Kerry’s mouth.

CONSUMERS/INDUSTRY: Reggie’s back and the intellectual slop goes on

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Regina Herzlinger is back and has now moved from Market Driven HealthCare (which in my view produced one of the best letters ever to Health Affairs from Jamie Robinson following her disputing of his review) to a new tome called Consumer-Driven Health Care: Implications for Providers, Players, and Policy-Makers. The new book is basically 7 chapters from Herzlinger and a ton of short pieces (600 pages worth) describing a grab-bag of "innovations" in health care.

Trying to define, understand or explain Herzlinger’s points is maddening, as poor old Jamie Robinson found out–he ges well slagged off in this book in multiple places, mostly for making the mistake of interviewing the CEO of Aetna as he was walking out the door–Reggie though remembers that nasty review. She wraps in so many anecdotes, so many stories, and includes so many variants of health services and insurance packages that what she actually thinks will work is baffling. The market will sort it out. But of course, not the market as we now know it (that for instance Don Johnson supports). She agrees that we need some form of change to the current set of market incentives. But she never actually explains what it is that’s going to get us from our current dud system (on which we are agreed) to the consumer-centered nirvana. What type of changes to the tax laws, what about Medicare, how can you mandate risk adjustment? All big deals and all ignored.

This postulating a bunch of stories, flitting from one to another unrelated issue page by page, and not really getting to a solid intellectual explanation is exactly the problem Market-Driven Healthcare had. And of course there was neither a number nor a date in her book–she really understands how to be a forecaster! Well I suppose she nearly titled the book right. As the pharma industry showed us by spending $3bn a year advertising Rx drugs, it should have been called Marketing Driven Healthcare.

I think what she concludes in the latest tome is that Enthoven-style managed competition is a failure, even though it was never tried, but that it can be replaced with giving individuals the right to buy different assortments of flavor of health plan, using their own HSAs, and using highly complex risk adjustment to make sure no one games the system, and that insurers only seek out healthy people to insure. Providers will immediately respond by creating clear bundled pricing for disease states, or episodes of care, or something, these will be offered to insurers, or is it consumers, or is it both, and everyone will wonder happily into the sunset.

And how are we going toa) get everyone into these systems, particularly those who are in Medicare, where the real money is spent?b) cross-subsidize within a group when 80% of the money is spent on 20% of the people?c) pay for the care of the uninsured, rather than allowing them to be gamed out of insurance via underwriting?d) get the providers to actually create these bundled pricing schemes, when her own book shows that the only providers who ever had an incentive to figure out their costs for different care processes (the fully capitated California medical groups in the 1990s) couldn’t figure out their real cost structures?

Oh, all just details, details that Reggie doesn’t seem to think require explanation. According to her introduction she won the best teacher at Harvard award. Either she manages a much higher level of intellectual clarity in the rarified atmosphere of Cambridge than she gets on paper, or those Harvard MBAs are rather less demanding than their equivalents at Stanford.

Reading these two books is just so frustrating. Most of her criticisms of the current system are identical to the pro-managed competition crowd’s–about excessive provider power, perverse incentives, limited information about quality, low use of information systems, etc, etc. But she doesn’t ever give a clear view about what she thinks ought to be done to get from here to there. Or bother defending her ideas properly from the "naysayers" that she attacks. Somewhere in here there are some interesting ideas trying to get out. I just don’t think Reggie is going to be the one to explain them. That of course won’t stop her going on the lecture circuit and making a packet.

My final thoughts? Well as we’re dealing with Reggie, true to her style they’re just random anecdotes. First, when I saw her talk in 1998 she gave the presentation, made all these bold assertions and left without taking a single question. That was symbolic to me. Secondly, she spends a great deal of energy slagging off the single-payer and European models. But her favorite example of a really successful health care focus factory is the Shouldice institute for hernia repair in Toronto. You recall Toronto, it’s in Canada, and this care is all paid for by the single payer system in which the focused factory has thrived, without any help from self-actualizing consumers. But sadly even there the story isn’t that great. A 2001 clinical trial found that the Shouldice technique wasn’t as good as one from Lichenstein. So it’s another example of a North American factory being outdone by a foreign one.

The sad thing is that there is something to the concept of consumers making intelligent choices with their own money. Thrid party payment with cost-unconcious payers and guild-model providers is what got us into this mess. So something needs to replace it. The consumer movement needs as honest an intellectual theorist as Alain Enthoven is to the managed competition model or Steffi Wollhandler is to single payer. Regina Herzlinger is not it. But she sure sells a lot more books than they do.

PHARMA: How big a deal is cross-border Internet pharmacy?

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Regular THCB readers will know that I’ve been forecasting that the Republican administration will have the FDA back down from its stance banning re-importation of drugs from Canada (and elsewhere) mostly because over 80% of the public think that they ought to, and it’s by far the most disliked part of the recent Medicare bill. AARP has thrown its weight behind the change and HHS secretary Tommy Thompson has set up a commission to come up with that ruling, but of course there are still massive objections from the pharma industry. An organization called the Partnership for Safe Medicines is so keen on keeping the status quo that it even had a PR firm contact yours truly to ask me to cover a press conference it had yesterday, which included Peter Neupert, President of Drugstore.com speaking out against imports. Here’s the press release which quotes Neupert as saying:

    “Rogue Internet drug sellers, which operate offshore, overseas, or through Canada, are illegal and unregulated by U.S. or Canadian authorities,” said Peter Neupert, chairman of the board of drugstore.com, inc. “It is extremely difficult for consumers to know who they are dealing with on the Internet today; even sites purporting to be Canadian pharmacies may be actually located in Third World countries. We feel the only safe way to purchase prescription drugs over the Internet is to shop at an online pharmacy certified by the National Association of Boards of Pharmacy(R)’s (NABP(R)) Verified Internet Pharmacy Practice Sites(TM) program (VIPPS(R)).”

A little background. There are three types of internet pharmacy. 1) US based mail-order operations that are legitimate parts of US pharmacies and PBMs or are similar–Drugstore is in this number with Medco, Walgreens etc. They request that you send in a genuine prescription and are just another delivery vehicle like the corner pharmacy or the mail order that’s been used for years with no problems. 2) Then there are the ones who send you spam offering access to Viagra or Cialis and allow you to go online and buy with a prescription “their doctor” gives you. These guys are clearly cowboys and they are being dealt with by the proper authorities here, although some bloggers with a libertarian bent don’t believe that type of dispensing should be illegal. (By the way Trent, I somewhat agree, but it’ll never happen!).

3) What the SafeMedicine folk fail to point out is that there is a third group, which is composed of legitimate pharmacies already certified by the Canadian government which are simply mailing across the border as opposed to across the country. These look far more like the first group than the second. If you go to their site they demand a prescription, and their drugs come from reputable suppliers and are handled in as reputable a way as in the US. So is SafeMedicine advocating that these pharmacies receive the VIPPS certification so that US consumers can tell them from the cowboys? Of course not. They’re holding press conferences like yesterdays and peddling propaganda like this from a Pfizer sponsored doctor-journalist. That’s because the members of Safe Medicine are PhRMA and various associations of American pharmacists, who’s economic interests are hurt by imports, and by restricting the supplies available in Canada they are actually making it harder for those legitimate Canadian pharmacies to get drugs to send to the US and so are opening up the opportunity for the cowboys to step in. If the industry really cared primarily about patient safety they would support the FDA or VIPPS certifying Canadian based online/mail-order pharmacies. This was suggested on 60 Minutes a couple of weeks back by the mayor of Springfield, MA:

    Mayor Albano concedes that casually buying drugs on the Internet could be risky, but says it was quite simple for him to check out his Canadian supplier, and challenges the FDA to do the same thing. “The FDA has become a pawn of the pharmaceutical industry, that they are protecting those high profit margins. If the FDA wanted to put a plan together similar to what we’re doing in Springfield, that would be good for all Americans, they can do it in 15 minutes, relative to safety,” says Albano. “We get all our medications from certified, regulated pharmacies in Canada. It’s no different than going to your neighborhood pharmacy. And it’s the exact same medication.”

So beyond the ridiculous credibility problem that the industry is facing here, and the fact that they seem to have even lost the Republicans they bought and paid for in 2002, how much would it really cost them to retreat on this issue? My guess is not that much. Harris reports this week that only 4% of Americans have bought a drug online when prompted by email (which may of course be spam or a legitimate reminder email from drugstore.com or a competitor). That number is itself a problem for Drugstore.com, because it really means that only a small proportion of the drugs consumed in America come via mail order or online.

One number I found was that mail order counted for around 14% of all drugs in 1999–that was back in the days when PlanetRX and Drugstore.com could actually afford advertising! The vast majority of that 14% comes from the big PBMs mail-order operations. There don’t appear to be any good numbers on the amount of imports (at least the AMA News couldn’t find any) Quick update IMS reports that imports from Canada totalled about $1 billion in 2003 which is less than 0.5% of all drugs sold. The fundamental question is, why would you bother going to the trouble of importing from Canada if someone else is picking up the tab? Most Americans have pretty decent drug coverage and aren’t getting their drugs from Canada. The ones that do are the small share of Medicare folks who don’t have any drug coverage, and a few leading edge employers (like the city of Springfield). I suspect that the cost of losing that revenue is less than the hit the pharmas are taking in bad publicity right now. Let alone how bad it might be for them if this issue is enough to lose Bush Pennsylvania and Florida, which it well might be. In 1992-4 the pharmas kept pricing in check in what we called the “heads down for Hillary” effect. In the end the outrage against their pricing then wasn’t enough to prompt price controls, and they had a bonanza for the rest of the 1990s. Those tactics might be just as advisable now.

TECHNOLOGY/QUALITY: Physician use of point of care clinical information

So the proof is in–informed medical decision making at the point of care for physicians works and they like it. A very large sample of physicians (over 5,000 surveyed, out of 55,000 clinicians who could access the system) were given a point of care information system. 63% of them knew about it and 75% of those, used it. 41% of those users reported that they directly improved patient care they delivered by using the system. (The results are in the abstract here).

The only reason that this isn’t sweeping American medicine as we speak is, of course, that the system is only available in Australia.