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Reform and the Bottom Line

Michelle Ponte, for HealthLeaders Magazine, July 10, 2009
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Hospital leaders are trying to decode healthcare reform and predict the likely effect on their business from the assorted components of the various proposals out there.

Mention healthcare reform to a hospital leader and inevitably the conversation turns to payment reform. That's because a large component of the healthcare reform dialogue buzzing through Washington has much to do with changing the reimbursement structure as part of the healthcare fix.

"We want to make sure health reform does not become payment reform," says William Petasnick, president and CEO of Froedtert & Community Health, an academic affiliate of The Medical College of Wisconsin, and a nonprofit integrated delivery system in Milwaukee. He is concerned that major healthcare reform will result in changes to the current reimbursement system without sufficient changes to the rest of the delivery system.

Petasnick's concerns are valid given that political will is ramping up for major change. Reform is happening right now, as evidenced by President Obama's approximately $150 billion to healthcare through the stimulus package; the president's budget, which sets aside more than $630 billion for healthcare; and, among other things, the CHIP legislation passed in February boosting insurance coverage to 11 million children, up from 7 million.

Most reform plans playing out in Washington are trying to get as close to universal coverage as possible and they want to slow down healthcare inflation, says David Osborn, PhD, executive director of Nashville-based Health Care Solutions Group, a non-partisan healthcare think tank at Vanderbilt University. Payment reform is also wrapped up in the dialogue.

President Obama, who is promising major reform by the end of the year, campaigned on a children's mandate along with the possibility of a public insurance option in addition to employer coverage. Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, held a series of healthcare roundtables in the spring, and is calling for mandates for both adults and children. In particular, he advocates reform for the individual and small group health insurance markets, expansion of public health insurance programs, and tax credits for small businesses and low-income individuals.

Meanwhile, Sen. Edward M. Kennedy (D-MA) has introduced legislation that would require all Americans to get health insurance and would impose requirements for private insurers. For example, health plans would be required to cover people with preexisting conditions, there would be limits on copays for preventive care, and providers would be rewarded for delivering high-quality care. His legislation did not call for an optional public insurance program.

Until legislation is actually passed, it's difficult to decipher what the result will be to those doing the everyday business of running a hospital. Nevertheless, hospital leaders—such such as Petasnick, the immediate past board chairman of the American Hospital Association—are trying to determine how changes would impact the dollars and cents of running a hospital.

Altering reimbursement
As chief executive of an integrated delivery system that includes a large, urban academic medical center and two community hospitals, Petasnick believes three major changes are going to occur as a result of reform that expands access and coverage, the biggest centering on reimbursement.

"There will be a change in reimbursement going away from a fee-for-service environment to one that is built around fixed payments, pay for performance, bundled payments, and a focus on episodes of care and capitation," says Petasnick. In turn, care coordination will become much more important, which will lead to more system integration. Third, he says, hospitals will have to prepare for greater levels of transparency.

Addressing care coordination
Petasnick and his team are evaluating how Froedtert will function and meet its financial requirements should a different reimbursement evolve that includes fixed payments. "In our own strategic planning, we have to start asking: Are we integrated enough? Are there other aspects of care we need to be focusing in on? Are we investing in IT that will facilitate the kind of coordination we need?"

Petasnick says Froedtert has been preparing for more care coordination by focusing on the Institute of Medicine's six aims of improvement, which call for making care timelier, safer, effective, efficient, patient-centered, and more equitable. "If there is payment reform and one goes to episodes of care and bundled payments, they will have to be linked to clinical outcomes. So, we are spending a lot of time investing in IT, care coordination strategies, case management improvements, and in creating multidisciplinary centers as a way of making care more outcomes-oriented and patient-centered," notes Petasnick. The IOM's six aims are not esoteric ideas, he says. "They come together in a way that helps us focus on our patient-care strategies."

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