What's happening in Washington with healthcare reform is laughable in the world of business. Well, laughable may not be apropos as so many people's livelihoods and well-being are at stake. Still, it would be preposterous for a company to inform its top employees that they are receiving a 21% pay cut, not because they are doing a lousy job, but because the bean counters used the wrong formula to calculate their salaries. It wouldn't happen. That company would be the laughing stock on Wall Street.
Instead the accountants would fix the formula that was used, perhaps explain the situation to the employees as a "loss" and find another way to make up the difference. Yet, it seems the government cannot follow the same basic guidelines that any first year accountant would apply: when your numbers don't work because the formula you're using is wrong and outdated, fix the formula, and then address how to correct the loss (and do it the first year, not seven years later).
This brings me to last week's episode of the Medicare saga, in which bill S. 1776 (Medicare Physician Fairness Act of 2009) was swiftly introduced by Sen. Debbie Stabenow (D-MI) in the hopes that it would waylay the 21% Medicare reimbursement cuts scheduled to take effect next year for physicians.
Everyone agrees that doctors are doing a great job getting people well, but they just don't all agree if it's fair to pay them the right amount to cover the cost of doing the work. In fact they think they should get paid less than they did last year. Nevertheless, the bill failed. Not to fret the reimbursement cuts are still in limbo. Why? S. 1776 was just the annual mad-dash to block the reimbursement cuts from taking place, but it's not the only bill in the works that could stop the cuts, and it was really just muddying the waters.
Look for politicians to spend the next couple of weeks debating three bills that will likely have a far greater impact on hospital bottom lines, and healthcare overall. I caution you not to get distracted by any of the other bills on this matter. At this stage many of them lack the teeth and clout to go far. For now the most pressing pieces that will impact hospital administrators and boards are:
S.1796—the Baucus Bill, formally called America's Healthy Future Act of 2009
H.R. 3200—the Tri-Committee Bill (sometimes called the Kennedy-Dodd Bill), formally called the Affordable Healthcare Choices Act
S. 1679—the Affordable Health Choices Act, which was approved by Senate Health, Education, Labor and Pensions Committee's (HELP) on July 15.
The Senate reconciliation process is ongoing among select members of the Finance and the Health, Education, Labor and Pensions Committees and they are reviewing these bills behind closed doors in an attempt to create what I like to call the "healthcare hybrid." Expect to see the fruits of their labor over the next couple of weeks. It's hard to say what intoxicating blend might result from this review, but historically speaking it's likely that a 21% reimbursement cut for next year won't take place (though that doesn't mean a smaller cut won't take effect). Plus you should anticipate a heady dose of health insurance coverage changes—translation, your payer contracts will be adjusted eventually and probably not in your favor.
So while you're waiting to see what the outcome is, it's best to check your numbers, start with your patient mix. For most hospitals that breaks down to
50% Medicare
35% Payer Contracts
5% Medicaid
5% Charity/Bad Debt
5% Miscellaneous (varies by hospital)
If you haven't already pondered the possible outcomes of these bills, then it's time to run some numbers. Consider how each bill may affect your overall operating margin, start by looking at the following:
Calculate the effect a 21% cut in Medicare reimbursements will have on your bottom line. Also look at a 5% and 10% cut in reimbursements, as those numbers are being bandied about by politicians. To get an idea how to approach this, the American Association of Family Practitioners has put together an excellent reference tool.
Analyze your contracted payer reimbursements; assume the same cuts above are taking affect. However, keep in mind that currently payer negotiated rates are generally 130-150% that of the Medicare rate. No one knows if those percentages will change if insurance companies need to try to make up potential losses from healthcare reform so adjust for a 110-120% rate.
Review your Primary Care Physician staffing levels and compensation. All of these bills call for more unilateral healthcare coverage, which means you'll need more PCPs to cover an influx of patients.
Consider alternative ways to offset the need to hire large numbers of PCPs to handle this influx of patients, such as utilizing more nurse practitioners.
Find the hidden fat. You've been trimming expenses, but there is likely a bit more lard to cut from your budgets. Look to your staff, if you haven't done so already, to help you find it (they know their jobs may be on the line and they will be more than ready to help you find those problem areas).
In this economy it's sometimes hard take your eye off today to truly focus on tomorrow. But if you aren't considering the serious ramifications of the five and ten years effects of any of these bills on your hospital you will be grossly unprepared by what happens when reform takes place–and not unlike what's happening with healthcare reform in Washington, that's no laughing matter.
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The House of Representatives unanimously passed a bill Tuesday, October 22, that would exempt a healthcare practice with 20 or fewer employees from the FTC's identity theft Red Flags Rule requirement.
The bill moves onto the Senate.
The Red Flags Rule, which will be enforced starting November 1, 2009, requires healthcare entities considered to be "creditors" to implement an identity theft prevention program.
Further, the bill passed by the House last week, which was filed by John Herbert Adler (D-NJ), Paul Collins Broun, Jr. (R-GA), and Mike Simpson (R-ID), lets off the hook an entity that:
Knows all of its customers or clients individually
Only performs services in or around the residences of its customers
Has not experienced incidents of identity theft and identity theft is rare for businesses of that type
The FTC would determine if a business meets these criteria.
The U.S. Food and Drug Administration division that regulates medical devices does not systematically review adverse event reports to address safety concerns that hospitals, nursing homes or manufacturers are required to file, according to a review issued Friday by the Office of Inspector General.
The number of these reports, which are filed through the FDA's MedWatch program, doubled between 2003 and 2007, from 72,886 adverse events involving medical devices to 150,210, the OIG said. The vast majority were submitted by manufacturers in compliance with a requirement such reports be submitted within 30 days of the realization that a device caused or contributed to a death, injury or malfunction.
The incident must be reported within five working days if an event requires action other than routine maintenance to prevent a public health issue. And about 1% of the reports came under this requirement.
But the Inspector General's report found the following problems with the FDA's required review of those reports, which are the responsibility of the Center for Devices and Radiological Health (CDRH).
Manufacturers submitted most adverse event reports on time, but many 5-day manufacturer and user facility reports were late. "Although manufacturers submitted only 54 (of the) 5-day reports in 2007, 31% of them were late, a decrease from 64% in 2003."
Hospitals and nursing homes submitted to the FDA 39% of both death and injury adverse event reports late in 2007. From 2003 to 2007, such facilities submitted "at least 42% of adverse event reports late to manufacturers."
The CDRH does not use adverse event reports in a systematic manner to detect and address safety concerns about medical devices. "Analysts have documented little of their reviews, which can make it difficult to trace the response to an individual event," the OIG said.
It added that postmarket surveillance might follow adverse events, "however, at this time CDRH cannot link these activities to particular adverse events. CDRH also lacks an established system to document when adverse event reports result in onsite inspections."
CDRH does not consistently read adverse event reports for the first time in a timely manner and, in fact, analysts read fewer than one-third for the first time within 30 days and less than half within 60 days. Though procedures require that high-priority adverse events be ready for review within 96 hours of receipt, "we were unable to verify CDRH's compliance with these procedures through its documents."
CDRH rarely acts when manufacturers and user facilities submit reports late. "Analysts told us they generally forward concerns about timeliness only when they notice pervasive problems, and they usually handle concerns informally by calling the manufacturers."
The OIG recommended that the agency:
Document follow-up of adverse events and develop a tracking system.
Ensure and document that CDRH is meeting its guidelines for reviewing all 5-day and Code Blue (reports of pediatric, multiple deaths, exsanguinations, explosions, fires burns, electrocutions, and anaphylaxis) reports as its highest priority.
Follow up with manufacturers that routinely submit reports late or with incomplete information.
Enhance outreach strategies to reduce underreporting by user facilities.
Seek legislative authority to eliminate the requirement for user facilities to submit annual reports, which would decrease regulatory burden.
The FDA requires that product quality problems, therapeutic inequivalence (when a dosage or strength of a drug is not as labeled) or failure, product use errors with human medical products, such as drugs and medical devices, all be reported.
If there is the potential for repetition or continuation of harm from these devices, the FDA can recall or suspend the device, require the manufacturer to conduct postmarket surveillance, levy a civil monetary penalty not to exceed $150,000 per event and $1 million per proceeding, issue a warning of FDA's intent to seek criminal prosecution, file a proceeding to seize a device, seek an injunction or refer the matter to the U.S. Attorney for prosecution.
While a public insurance option appeared to be a sure thing in the nearly reconciled House bill, it seemed "iffy" at times for the emerging Senate bill—until last week. Now, a public option seems to be on track—although what form it will take remains under discussion. In the meantime, legislation that would overturn the federal health insurance antitrust law is quickly advancing in both chambers.
"I think we're very close to getting the 60 votes we need to move forward," said Sen. Charles Schumer (D-NY) on Sunday on NBC's "Meet the Press." "My guess is that the public option level playing field with the state opt out will be in the bill. But [Majority] Leader [Harry] Reid will make that decision after he talks to everybody several times."
"I think what we're going to end up with is having votes on a number of choices, said Sen. Claire McCaskill (D-MO), who reflected on the various alternatives that could pass on ABC's "This Week with George Stephanopoulos.
These choices could include "the ability for states to opt in to some kind of not for profit plan, the ability for states to opt out of some kind of not for profit plan to compete with the private insurance companies on this exchange, and then the option to trigger a not for profit plan if the insurance companies don't manage to bring down costs within a certain period of time," McCaskill said.
She added that she had "not drawn a line in the sand" on how she'll vote. "I support the public option. I'll vote for the public option. But I'm focused on these deficit costs, on how can we reconfigure the way we pay for healthcare."
Meanwhile, the White House sought to dispel "a rumor making the rounds that the White House and Sen. Reid are pursuing different strategies on the public option," said Dan Pfeiffer, the White House deputy communications director, in a White House blog.
Those rumors "are absolutely false," he said. He added that the president "completely supports [the Senate's] efforts."
On the antitrust front, the House Judiciary Committee voted 20-9 to overturn the McCarran Ferguson Act that would ban health insurers from sharing data and engaging in price fixing. In her weekly address last week, House Speaker Nancy Pelosi (D-CA) indicated that measure will be incorporated into the House's healthcare care reform bill.
Also, last week, Senate Judiciary Committee Chairman Patrick Leahy (D-VT), who introduced his own bill to overturn McCarran-Ferguson, and Sen. Reid announced that Leahy's bill will be offered as an amendment to health insurance reform legislation on the Senate floor.
A new independent study released this morning appears to support President Barack Obama's claims that the nation's $2.3 trillion healthcare system is fraught with waste.
The study by the Healthcare business of Thomson Reuters estimates that between $600 billion and $850 billion—about one-third of the nation's total healthcare bill—is wasted each year through a combination of fraud, administrative inefficiency, unnecessary or redundant care, avoidable complications, errors, and lack of care coordination.
"You read and hear a lot about how much waste there is in healthcare," says Robert Kelley, vice president for healthcare analytics at Thomson Reuters. "We wanted to be relatively sure that when we say how large the opportunity is we are able to back that up with statistics and informed expert opinion about very specific types of waste and where they occur."
The study, based on analysis of hospital financials, insurance claims data, government data, and a review of existing literature, identified unnecessary care as the largest driver in wasted healthcare dollars. The over-use of prescription antibiotics and the use of diagnostic lab tests performed to protect against malpractice exposure accounts for between $250 billion and $325 billion—as much as 40% of the overall wastage—in annual healthcare spending.
"In the healthcare debate, there are all these issues about how we are going to pay for extending services and access to those that don't have it. We are hearing: 'You are going to take healthcare away from me. There are going to be death panels because that is the only way you can come up with the money,'" Kelley says. "So it became relevant for us to say, 'Is there really a lot of money available in the system where we can redirect resources to provide services for people who don't have them and not have a negative impact on the rest of us?'"
Other major waste drivers include:
Fraud (19% of healthcare waste): Healthcare fraud accounts for approximately $125 billion to $175 billion in annual healthcare spending, manifesting itself in everything from fraudulent Medicare claims to kickbacks for referrals for unnecessary services.
Administrative inefficiency (17% of healthcare waste): The large volume of paperwork in the U.S healthcare system accounts for $100 billion to $150 billion in annual healthcare spending.
Provider errors (12% of healthcare waste): Preventable treatment errors, ranging from complications because of procedure-related injuries to treatment of adverse drug reactions account for $75 billion to $100 billion in annual healthcare spending.
Preventable conditions (6% of healthcare waste): Approximately $25 billion to $50 billion is spent annually to treat preventable conditions, such as uncontrolled diabetes.
Lack of care coordination (6% of healthcare waste): Inefficient communication between providers, such as duplication of tests and inappropriate treatments resulting from a lack of access to medical records between providers, costs between $25 billion and $50 billion annually.
Kelley concedes the estimates in his study are similar to those put forward by the White House and other advocates for healthcare reform.
"The number of around $700 billion has floated around for a while, but not with a whole lot of detail backing it up," he says. "When I started looking at this, that number was the target I had in mind."
Kelley says identifying waste may prove to be easier than eliminating it. "Things like defensive medicine, that is a hard one to get a handle on," he says. "It's like everybody knows it happens, but there is a lot of disagreement over whether or not it is a major issue or not. The literature and expert opinion I collected suggests that it is probably pretty significant and there is a lot of discussion about how you address this."
Kelley says it could prove very difficult to overcome a consumer culture where patients feel they are entitled to any and all treatments, regardless of the cost or the efficacy. That entitlement culture could become more entrenched as more people become insured. "We don't hear a lot of discussion about the realities of where this is heading. If we do extend the coverage to more people, they're going to be want to be in the same 'me too' path as everybody else," he says.
An even bigger problem, he says, is healthcare consumers acting out of ignorance. "Patients have no idea of what the value might be for them. 'The doctor says I need a prostatectomy. I guess I need one.' They haven't been encouraged into the decision-making. They just don't know," he says.
Unproven and expensive new technologies also drive waste, he says. "It's hard to distinguish between that that has a large incremental value versus that that doesn't," he says. "Non-invasive aortic aneurism repair, for example, has increased the rate of doing the surgery and actually has worse outcomes and it's more expensive. But no one looks at that. It's the new toy and every one of those surgeons races out to make sure their hospital has the kind of technology you need to do that surgery."
Top Senate Democrats are close to finalizing their health bill and could unveil a measure that would include stiffer penalties on employers who fail to provide health coverage. Senate leaders plan to submit the bill to the Congressional Budget Office for a cost estimate as soon as October 26, and make the legislation public as soon as a day later, according to a person familiar with the negotiations. The bill is expected to expand health coverage to tens of millions of Americans by giving low- and middle-income Americans subsidies to offset the cost of insurance, and expanding the Medicaid federal-state insurance program to cover a broader swath of the poor.
Several Democratic senators have voiced optimism that Congress would pass a healthcare bill containing at least the germ of a government-run insurance program, the New York Times reports. The senators' remarks came after Harry Reid, the Senate majority leader, told President Obama that he would try to press for a government-run insurance program. With five healthcare bills under consideration in both branches of Congress, Speaker Nancy Pelosi has already said that the House version of the legislation would include the public option, but other key senators have previously said it would be difficult to round up 60 votes needed to guarantee that the legislation would not be blocked by a likely Republican filibuster.
As the proposed $900 billion healthcare legislation is under debate, a critical unknown is whether people would comply with a mandate on individuals to carry insurance. The Senate Finance Committee set its maximum penalty for noncompliance at $750 per year, at the same time creating subsidies to help low-income Americans buy coverage. In the House, the penalty is based on income, but works out to about the same for a middle-class family. But many reform supporters say the finance panel's subsidies are too low, and insurers are pushing for larger penalties.
With a growing sense that Democrats may have the votes to pass healthcare reform, many participants are now attempting to shape the components of landmark legislation rather than to defeat it, the Washington Post reports. Senate Majority Leader Harry M. Reid (D-NV) is expected to request a cost estimate on the bill he has worked out behind closed doors, and lawmakers, industry executives, and lobbyists told the Post that this is the moment to exert maximum influence on legislation aimed at refashioning the $2.4 trillion healthcare sector.
As President Obama's push for a healthcare overhaul moves toward its final stages, the health insurance industry is on the verge of seeing a plan enacted that largely protects its financial interests. There is broad agreement that the final plan will, for the first time, require Americans to buy health coverage, with taxpayer subsidies for millions who cannot afford it. For the health insurance industry, that means millions of new paying customers. In addition, there are likely to be no limits on what insurers can charge, while at the same time the plan is expected to limit competition from any new national government insurance plan that lawmakers create.
