White men who arrive in emergency rooms with chest pains get treatments for heart trouble faster than African-Americans or women do, according to a study by researchers from the Centers for Disease Control and Prevention. The numbers are not clear-cut evidence of discrimination on the basis of race and sex, said the study's authors. Emergency room responses may be based on evidence that ischemic heart disease is more common among those who get faster treatment, and that chest pains are more likely to have other causes in nonwhites and women, said researchers.
UCLA Medical Center will fire some employees and discipline others for looking at the medical records of Britney Spears, who was hospitalized in its psychiatric ward. The hospital did not say when the snooping took place or which of Spears records were looked at.
Five years after the Unted States invaded Iraq, many Iraqis still lack access to basic healthcare, sanitation and clean water, the International Committee of the Red Cross said. Iraqi hospitals lack qualified staff and basic drugs, and their facilities are not properly maintained, according to the agency. Public hospitals in the country only provide 30,000 beds--less than half of the 80,000 needed.
It seemed like a reasonable strategy at the time--getting the lowest possible interest rates on debt issuance by using auction-rate financing and by obtaining insurance backing to reassure investors. In fact, since 1984, when auction rate debt first emerged in tax-exempt hospital financings, the strategy has worked well. At auction, investors stepped up to purchase the insured debt in virtually every case. (In the course of two decades, only 13 auctions failed to place the debt offering). Hospitals benefited from lower rates, and investors felt relatively secure in their hospital bond holdings.
Along came the subprime mortgage frenzy, and hospital capital markets have been drawn directly into the eye of the storm. The connection between subprime mortgage lending and hospital tax-exempt bonds is not an intuitively obvious one. The connecting links include bond insurance companies such as FGIC and MBIA that also guaranteed mortgage-related securities and investors who fear that these insurers may not be able to cover the pending mortgage losses. The credit downgrades of FGIC (Financial Guaranty Insurance), XL Capital Assurance, and ACA Financial Guaranty (three of the handful of insurance providers for bond financings), along with the potential downgrade of MBIA and other insurers, leaves investors wondering what security these insurers really bring to tax-exempt bonds.
Perceiving higher risk, investors insist on higher returns, driving tax-exempt rates skyward or, in the extreme, resulting in no interested buyers at any reasonable interest rate. In the second half of 2007, for example, there were 31 failed auctions for auction-rate debt, according to Moody's. In mid-February 2008, the situation deteriorated with many more failed auctions and soaring rates. After a failed auction, the Port Authority of New York and New Jersey is now paying 20 percent on its auction-rate bonds where it used to pay 4 percent. The capital crunch facing the nation's banks as they struggle to cover mortgage write-downs also means that they are not an available resource to help stabilize the bond auction market.
Short term impact
As a result of the turbulent market, some hospital systems have seen the interest rates on their auction-rate debt soar from 2 percent to 3 percent to more than 10 percent in some auctions. This swing in rates has nothing to do with the underlying creditworthiness of the borrower, but rather with the state of the bond market. While the bond market may stabilize somewhat over coming months, the long-term high demand for capital in the hospital industry and the continuing liquidity pressure on financial institutions means that capital will be tight and tax-exempt interest rates are likely to be considerably higher than they were in the past few years.
What can hospitals do?
For hospitals and systems with insured auction-rate debt, there are several strategies to consider:
For strong credits, it may make sense to refund the issue with fixed-rate bonds and ride on the creditworthiness of the borrowing organization going forward, foregoing the cost of insurance. Hospital leaders and boards may be reluctant to make this move, because of the costs already incurred for insurance and for swap provisions in the original issue (that are likely under water) that would have to be written down.
In many cases, it makes sense to convert to variable-rate demand obligations, keeping the insurance and the swap provision component of the debt. Of course, this option lessens but does not eliminate the risk associated with interest volatility in the variable rate market.
Some health systems may be strong enough to consider buying back their own debt in the short term and refinancing down the road when conditions are favorable. St. Louis-based BJC Health System, for example, recently announced plans to bid on its own auction-rated bonds and refinance the debt later. There are numerous tax questions associated with this approach, but for issuers with ample liquidity this is an alternative to consider.
In addition to the financing strategies above, hospitals and hospital systems should consider the following lessons learned from this volatile marketplace:
Hospitals should be planning how they can absorb the greater-than-anticipated cost of financing. Incorporating assumptions about tighter debt markets and volatile interest rates will be a critical part of financial and capital planning. Financial projections that were done to support borrowing for major projects in recent years should be updated as part of the assessment for refinancing or converting debt. Already, both Standard & Poor's and Moody's are using much more stringent assumptions regarding variable rates in their analyses of the risk profiles of their credits.
Due to skepticism about the value of insurance, the market is likely to be more focused on the underlying credit of the borrower. Thus it is in the interest of every borrower to look closely at its current and projected financial performance and to strengthen the financial fundamentals of the organization to the extent possible. Purchasing insurance is not a tactic that will make up for mediocre performance any longer.
Recent experience points to the value of diversifying financing sources. Putting too much of the organization's financial capability in a single financing vehicle can unduly increase risk in today's market. Just as asset allocation makes sense for personal portfolio management, each organization should carefully assess its potential sources of debt funding and, in concert with its financial and investment backing advisors, select a mix of sources (fixed, variable, long- and short-term) that minimize cost at an acceptable level of risk.
Deborah S. Kolb, PhD, and Scott B. Clay are senior principals at the Noblis Center for Health Innovation and may be reached at deborah.kolb@noblis.org and scott.clay@noblis.org, respectively. Peter W. Bruton is managing director at RBC Capital Markets, and may be reached at peter.bruton@rbccm.com.
Well, that depends on what you mean by "working." Does P4P improve healthcare quality while holding down increases in cost? Does it bring better value for the healthcare dollar? The jury appears to still be out on those more pointed questions.
In my second year attending the National Pay for Performance Summit in Los Angeles, there was certainly no consensus. How could there be, given the sheer number of these programs that have been tried over the past few years? However, given the fireworks we saw on the panel bearing the title I stole for this column's headline, there's still a lot of disagreement over whether pay for performance, the practice of rewarding doctors and hospitals for gains in quality and cost control, "works." But even amid all the yammering back and forth between skeptics and true believers resembling a cable TV news network, if "working" means hospitals and physicians are changing their behavior to achieve a performance target in order to gain a slight edge in reimbursement or financial reward, P4P is indeed working.
Are the dozens of P4P programs rolled out by commercial payers and Medicare over the past few years measurably improving patient outcomes and saving on unnecessary treatment? Well, that certainly depends. The evidence is mixed on that front, especially if you're looking for scientific, peer-reviewed evidence. Certainly some of the early P4P programs were little more than attempts by insurers to reward the lowest-cost providers, regardless of quality. But no one can argue that they haven't gotten more precise and more focused on quality in the intervening years. That's happened not by the generous actions of health plans who realized some of their methodologies were flawed, necessarily, but often from settlements with state attorneys general and other pressure from providers to better tailor the programs.
Many P4P programs started out as voluntary initiatives. Certainly the Medicare ones have been, and the payments for the achievements are relatively small compared to the reimbursements hospitals get for procedures. The programs are all over the map in their complexity and the rewards providers get--sometimes for demonstrated improvement, and sometimes just for participating. But they were voluntary with an asterisk. Any provider who declined the first round of P4P participation would be just that much farther behind than those who decided that performance measurement was the future and they'd better figure out how to play.
Many physicians and hospitals are still skeptical that any measurement tool could conceivably account for the complexities in healthcare. It's not as simple as comparing patient outcomes, they say, and the outcomes' correlations with cost. Methodologies are flawed, they say, and pay for performance really is masquerade for cost control in a system where the health insurance companies, especially the for-profit ones, are simply looking for ways to pad their balance sheets. Besides, "my patients are sicker," they say.
Such complaints at one time held some water. But they're rapidly losing credibility in what seems to be documented evidence over the past five years that performance improvement tied to rewards does, in fact, help improve quality. As data becomes more granular, comparisons to determine whether certain doctors see sicker patients has been easier to determine and adjust for. But one thing has changed since P4P debuted. You don't hear too many hospitals or physicians rejecting the tool out of hand--that is, rejecting the concept that they must be measured. That's because as health costs creep inexorably higher, the ability of healthcare to extract a bigger slice of the GDP pie has become heavily constrained.
"If you're asking us to give more money, we're asking for proof the money has been well spent," says Francois de Brantes, executive director of Bridges to Excellence, one of the oldest employer-supported groups that seeks to improve healthcare outcomes and deliver value in healthcare. "We need more than, 'Trust me. I'm doing a good job.' "
In most other industries, buyers don't accept the manufacturer's word that the seller's degree from Harvard means his widgets are better than the guy from State U. They also don't accept that spending ever more on the production of said widgets guarantees the quality will be better. They want proof. So what's wrong with asking for proof in healthcare that doctors are washing their hands, operating on the right body part, not ordering unnecessary tests or not prescribing highest-cost prescription drugs or medical devices with little regard for their relative efficacy? The acronym may change, but my guess is that P4P isn't going anywhere.
One thing that was said at this inflammatory panel caught my ear. The biggest change in the dynamics between payers and providers has been the necessary involvement of the hospital finance suite in P4P programs. The additional money associated with many P4P programs has caused CEOs and CFOs to talk to clinicians to figure out how to improve measurement, documentation and performance in healthcare to try to get their hands on that extra money.
It's about time.
I'd love to hear how you feel about P4P. Has it "worked" in your markets? Why or why not? How could the measure sets be applied more fairly? What's being measured erroneously given that P4P is here to stay, and how can those sets be improved? Please e-mail me with your thoughts, comments and ideas.
I spoke with Matthew Hermann this month for my cover story on hospital entrepreneurship. Some hospitals are investing in venture capital not only for the potential financial gains, but also to be able to take advantage of the innovative solutions being developed by the companies in which these funds invest. Ascension Health Ventures, which Hermann runs, is a so-called "capitive" investment vehicle for Catholic health system giant Ascension Health that focuses on investments in early-stage healthcare companies, among other investments. Before joining AHV, he served for five years as vice president with a New York-based venture capital management company focused on early- to mid-stage healthcare services and information technology companies.
Cleveland Clinic's CEO, Delos "Toby" Cosgrove, whose own research has produced more than 30 patents, recently sat down with McKinsey's Brendan Buescher and Paul Mango to discuss healthcare in the United States, the importance of innovation as the industry globalizes, and the delicate balance among competing interests in the field. Cosgrove is not your usual executive; he spent 30 years at the clinic as a cardiac surgeon before being promoted to CEO, in 2004. Since then, he has immersed himself in the details of his new role, seeking to improve not just the clinic and the health of its patients but also their hospital experience and the future of the healthcare industry overall.
Under Florida Gov. Charlie Crist's "Cover Florida" proposal, the estimated 3.8 million Floridians who lack health insurance would be offered an affordable plan for "$150 a month or less." The proposal would not come with a state mandate that individuals had to buy it or employers had to offer it. Cover Florida also would give insurance companies lots of leeway in deciding how to structure such a health plan. Experts say the plan is doable, but people would need to rein in their expectations when it comes to coverage for hospital stays and other high-ticket medical costs.
There is a critical shortage of neurosurgeons and hand surgeons in Palm Beach County, FL, and many do not work on-call. As a result, patients in the county with life-threatening conditions or intricate injuries can wait several hours before receiving care. Now a group of doctors, hospital administrators and healthcare officials has decided to craft detailed plans of how a regional on-call system would work in neurosurgery and hand surgery.
The family of a now-deceased illegal immigrant who said he was denied medical care for cancer can sue the federal government for damages, a federal judge ruled, calling the allegations "beyond cruel and unusual" punishment. A U.S. attorney's office spokesman said the government might appeal.
