President Barack Obama has appointed New York City Health Department Commissioner Thomas Frieden, MD, as director of the Centers for Disease Control and Prevention. Frieden is an expert in preparedness and response to health emergencies, and has been at the forefront of the fight against heart disease, cancer and obesity, infectious diseases such as tuberculosis and AIDS, and in the establishment of electronic health records.
I wrote recently about a report in Health Affairs that claims the nation's physicians and their staffs average three hours a week haggling with health insurance companies over claims, credentialing, authorizations, and formularies.
According to the report, The Costs to Physician Practices of Interactions with Health Insurance Plans, total staff interaction time with insurance companies system-wide converted to dollars equaled $21 billion to $31 billion annually—an average of more than $68,000 per physician per year. The report didn't provide a further breakdown about how much time was spent negotiating with private plans, and how much was spent with public plans such as Medicare/Medicaid.
I asked America's Health Insurance Plans about the report and whether they felt the cost estimates were in the ballpark. They couldn't say either way, because they hadn't seen the report in detail, nor the methodology. Fair enough. They said they'd look at it and get back to me.
Some readers who work in physicians' offices have e-mailed me to say that health insurance companies intentionally make the process difficult for providers with the hope that they will give up on contentious claims. I'm not saying that. Some people are.
For argument's sake, let's say the Health Affairs study numbers are inflated. Let's say the cost is "only" $10 billion to $15 billion a year. That's still a tremendous amount of money, representing a tremendous waste of time.
The wasted time spent haggling is a bigger problem for primary care physicians than for their subspecialist colleagues. That's not surprising because primary care physicians generally have a more diverse patient mix, and contract with more insurers—each insurer offering any number of plan options with different deductibles, copays, formularies, etc. —to cover that mix. A primary care physician and her staff may have to be well-versed in the subtleties of 20 or more varying public and private plans, each with its own processes.
We hear a lot of talk about electronic medical records and other greatly anticipated advances in health information technology as the federal government commits tens of billions of dollars to these new tools. HIT will save money by introducing efficiencies into the system, we are told. It will eliminate redundant tests and improve the quality of care by emphasizing the use of cost-effective, proven treatments. It will reduce medical errors and ensure that physicians have full access to a patient's medical history and current data on what drugs they're taking.
That sounds great. I hope it works.
We don't, however, hear much talk about how the new age of HIT will reduce the snarling red tape of claims and formulary processing into a manageable mess that doesn't consume valuable time, effort, and up to $31 billion a year that could be spent on patient care.
In every physician satisfaction survey or report I've read, haggling with insurers regularly places among the top sore spots for physicians. Some physicians say it is driving them out of medicine. In the HealthLeaders Media Industry Survey 2009, physician leaders noted their frustration with insurers. Other than higher reimbursement rates (51%), the thing doctors said would most improve payer relations was to speed up processing, fixing, and paying of claims (20%).
If government wants physicians to embrace HIT, then government must demonstrate that this new technology will reduce insurance hassles. These daily skirmishes with insurers are low-hanging branches in the move to trim healthcare costs. Let's hope HIT comes with a pair of pruning shears.
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Margins at U.S. hospitals are declining as the recession and growing unemployment impacts insurance coverage, hospital investments, volumes, and even the health levels of the patients showing up at emergency rooms. Hospital executives are being pressured by their communities to save jobs and provide more community benefit; while at the same time healthcare reform hangs overhead and the media relentlessly pounds out story after story about the high cost of healthcare.
So what's a hospital CXO, or C-level, executive to do? It seems that your mission and reality have irreconcilable differences. At first blush, it seems impossible to balance your priorities and your finances.
Consider the following typical priorities of a hospital CXO:
I don't want to lay off caregivers. Nurses, food tray delivery workers, technicians, transporters are the people who deliver my product and give my hospital a face and personality. Not all are highly paid and my community depends on me as an employer.
If I can reduce purchased services or the utilization of high-cost and overpriced supplies, that's perfect. But it's not going to be enough. Purchased services and supply utilization are hard to uncover, so perhaps there's something we've missed.
Corporate costs need to be rethought, especially if it enables me to preserve caregivers. I know this is the highest growth area of my cost structure, but it's taken a lot to build my team so I hate to go there.
Whatever happens, I can't do anything to jeopardize quality. Quality care is our mission and those quality scorecards are everywhere – I can't slip up. Could a quality focus even help my margin? How? I keep being told I can't make cuts if I want to deliver quality care.
To navigate these priorities and at the same time get margins back on track, a CXO needs to know:
Where is my potential and how can I measure it objectively and quickly?
Where do I have quality problems, what does it cost, and who is responsible?
The good news for hospital CXOs is that there are typically more "pain-free" and "bearable pain" cost-saving changes than appear at the outset. Here's what we see in thousands of assessments with our clients.
Pain-free: 1. Surgical supplies and invasive cardiac supplies: Utilization that is not explained by patient acuity or outcome varies significantly from physician to physician. This is worth taking a hard look at, and since you're comparing you-to-you, the accounting is straightforward, and the barriers to learning are lower. It is difficult to monitor, however, and physicians are not always happy to be scrutinized.
2. Purchased services: Put your vendors on notice and ask for new bids. An examination of purchased services provided by more than one source or with a high frequency can lead to the kinds of savings that supplies provided in the past. Are you using multiple law firms? Consolidate. Wash the outside windows twice a year rather than quarterly.
3. Agency usage: Naturally, agency usage that fills a real staffing shortage is not something that is eliminated easily. More often than not, there are significant productivity gains that can be made across a hospital and agency usage can be reduced with management focus. These are pain-free layoffs.
Bearable Pain: 1. Productivity improvements: When you examine productivity and use fewer labor resources, it's not always true that you're laying off people. Hours may be down and call-ins and overtime are reduced. Productivity is up and the cost position is shored up as well.
2. Program review: Take a hard look at the profitability of your outreach programs. (But why are we just limiting this to outreach programs? Yes, include outreach . . . maybe even start there first. But how about other services as well?) You can't be all things to all people and some of these things cost a lot more than just the people involved in them.
3. Focus on high-cost, poor-quality events: The federal government provides the means to measure inpatient events that "should-not-happen," such as deep vein thrombosis, failure to rescue, and hospital acquired infections. These events correlate very strongly with a hospital's ability to be cost effective. If you want to manage costs effectively, you have to manage these very specific quality issues first. It is entirely possible to compute what they cost and who/what is responsible. Sensitivities around these issues mean it's not pain-free, but a bonus is that it engages clinical staff around their core values and proves that good quality costs less.
Painful but useful: Sometimes a downturn and resulting reassessment provides the impetus to making needed decisions. 1. Span-of-control: A structure that's top-heavy hurts your organization's costs and its ability to make decisions. Your managerial ranks are your top performers at some level, so there is pain associated with reduction in managers and layers. It can be a time, though, to consolidate smaller departments; assess the worst performers and trim appropriately.
2. Corporate costs: Marketing, finance, accounting, telecommunications, and information systems are critical but also have not had the same level of cost scrutiny as facility-based costs. Over time, subsequent mergers mean services are duplicated at the corporate and facility levels. Sharing the margin pain can recalibrate priorities towards caregivers.
Painful and risky: 1. Caregiver layoffs: Enough said.
Closing the margin gap while being true to the priorities you've established is neither hopeless nor pain-free. But pairing your priorities with the levers under your control can get you a lot further along than most executives imagine.
Tom Day is President of HMC, Inc. He can be reached at (781) 449-5287 or www.HMC-Benchmarks.com/contact/.For information on how you can contribute to HealthLeaders Media online, please read our Editorial Guidelines.
Deane Corliss, vice-chair of the Health Care Practice Group at Bradley Arant Boult Cummings LLP, discusses what is driving hospital-physician alignment today and offers sound advice before you pony up the legal fees.
Remember last month when I said that healthcare bankers were "bullish" on healthcare lending, despite the bad economy? Well, it seems the mood has changed somewhat and I have to believe this is more reflective of the heightened uncertainty and angst around healthcare reform talk in Washington than it is about any changes in the economy.
In the last month, we have been bombarded with different healthcare reform proposals wending their way through Washington. Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, and Sen. Charles Grassley (R-IA), ranking minority member, who have been some of the louder voices recently, released policy options calling for a reform of the individual and small group health insurance markets, expansion of public health insurance programs, and tax credits for small businesses and low-income individuals. Any or all of these proposals could become legislation as soon as next month.
Meanwhile, House Speaker Nancy Pelosi (D-CA) says there will be healthcare reform legislation on the House floor by Aug. 1. And numerous other proposals are floating around.
A group of healthcare investment bankers and private-equity investors who spoke at a recent Nashville Health Care Council meeting say deals are getting done but volume is still down and they aren't predicting much change in the foreseeable future, at least until real reform takes place.
"Discussions in Washington are chilling the market now," says Bryan Cressey, partner with Cressey & Co., a Chicago private equity firm. While some companies are getting funding, there have been virtually no IPOs, and transactions on the private equity side have slowed considerably, says Duncan Dashiff, a managing director in the Nashville office of investment banking firm Shattuck Hammond Partners.
Nevertheless, Thomas Cigarran, chairman of disease management company Healthways, asked the group to reflect on what deals are attractive and what it takes to secure funding today.
"The keys to securing funding have to do with having a deep knowledge of healthcare so lenders know that you know how to improve your company," says Cressey. However, he adds, "You won't see transactions in companies that are reimbursement-sensitive."
Throughout economic cycles, "folks in our positions over-rewarded management teams that were more dreamers," says Jim Elrod, managing director of Vestar Capital Partners, a private equity firm in New York with $8 billion under management. "But we are in a moment of realism. The cavalry is not coming any time soon."
William Stitt, a managing director with Deutsche Bank Securities, says that deal volume is down by 60 percent since 2007 and 2008. "We are looking at lower leverage and seeing a lot of tightening in terms of lending and financing," says Stitt, who is based in New York.
A meeting on the status of healthcare lending wouldn't be complete without a prediction of future winners and losers in this ever-changing and unpredictable market.
"The winners are the folks who have companies that address conditions or populations and have generated good outcomes," says Elrod. He also notes that anyone in outsourcing and healthcare informatics will do well.
"One area we see as successful is healthcare IT, which will be a big beneficiary in the context of healthcare reform," says Dashiff. He says that while outsourcing from a revenue cycle standpoint has been big, there will also be a focus on clinical outsourcing businesses, such as those that run hospitalist companies. "There are a number of different subsectors in healthcare services where there is an opportunity to build," he adds.
Some of the losers will be home healthcare, hospice and nursing homes, according to Cressey. "The government says it will cut in those areas," says Cressey. But, he adds, there will be a natural floor because you can't eliminate more than 5% or 10% percent of providers. He also predicts that healthcare will make labor substitutions in the coming years. "For example, we will see more physician assistants subbing in for physicians and the market will allow it."
On a brighter note, as some European counties start to back away from government-sponsored healthcare, opportunities will open up for healthcare services companies willing to do business overseas. Says Elrod: "The hospital management business is white-hot in southern Europe."
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In all the talk about creating a medical home for every American, it's important to realize that increasingly, consumers are getting their healthcare outside of the traditional physician-based healthcare system. And that may very well be a good thing.
"Access to healthcare does not necessarily mean going to the doctor anymore," says health consultant Mary Kate Scott of Scott & Co. In her report for the California HealthCare Foundation released last week, Scott points to the rapid expansion of drugs and devices to test, monitor, and treat medical conditions without the physician office visit that defined access to healthcare a decade or two ago. In fact, a physician isn't required in the process at all.
"We're going to see an explosion in medical devices, and over-the counter drugs," as well as telemedicine applications for their use, Scott says.
"Consumers can purchase more than 700 over-the-counter medications whose ingredients and dosages were once available only by prescription," she writes in her report. "And in the last 15 years, numerous over-the-counter devices have become available" enabling oneself, or a non-physician to diagnose, monitor and treat a medical condition.
And that is the wave of the future, she predicts. "It's not like consumers love going to the doctor. They actually don't."
A person can now test one's own cholesterol levels for $10 with a store-bought kit, monitor blood glucose, assess blood coagulation to guard against problems with anticoagulant drugs, visit a kiosk to detect a urinary tract infection, and even undergo kidney dialysis at home.
Companies are marketing their DNA test kits directly to the consumer as well. And even though the state of California has outlawed that practice, it's a hard rule to enforce.
Her report, entitled "Health Care Without the Doctor: How New Devices and Technologies Aid Clinicians and Consumers," says the trend is being accelerated by a mushrooming number of companies developing such products. She adds that there is increasing consumer interest in purchasing such products regardless of whether a physician advised it, concerns about privacy and fear of being discriminated against if an employer or insurer learns of a pre-existing condition, the ease and low cost of their use, and more direct-to-consumer marketing.
The trend is getting another push from the fact that today, non-physician providers, specifically mid-level clinicians, "can administer tests that once were the exclusive purview of physicians and laboratories, which makes diagnostic, monitoring, and treatment capabilities more widely accessible."
But there are a number of impediments to the use of these new technologies, Scott warns. Physicians need to encourage their patients to use them, and even inform them of their existence, something they now have no incentive to do.
"The physician centered medical home is a very old-fashion model that means you have to show up in a physician's office. And the more they do for us the more they get paid," she says. That's wrong, she adds.
Scott says health payers need to start reimbursing doctors for health outcomes. "Perhaps a doctor can be rewarded on the overall health of their patient population," not on the basis of how many times they see a patient.
She realizes that organized medicine will not necessarily want this change. "Physicians will not advocate something that's a competitor," she says. "They think ‘I can do a better job; I need to see the patient to diagnose.' And they're also worried about liability."
"Older physicians tend to favor in-person diagnosis and treatment, while many younger clinicians are comfortable with e-mail communications, video consultations, and self care," she writes in her report.
"Bridging this gulf by determining, for example, what kind of evidence would convince physicians that new technologies and self-care can be beneficial, might speed the shift to more convenient, consumer-friendly diagnosis, monitoring, and treatment technologies."
Additionally, the U.S. Food and Drug Administration needs to more highly prioritize the hundreds of technologies now awaiting approval under the Clinical Laboratory Improvement Amendments waiver process. And the FDA needs to focus more attention to make sure that the devices are packaged in a way that makes it easy for the consumer to understand and use safely.
One question that remains unanswered in Scott's report is how much money expanding consumer-directed testing and treatment can actually save.
Somehow, health systems need to put in place certain rules, perhaps at the point of sale, to assure that those who purchase and use such drugs, test kits, and devices are competent to do so.
We know that one-third of all Medicare expenditures are spent in the last year of life, and one-third of those in the last month, a period when patients may not be in a health condition that allows the ability to even go to a store to make a purchase, much less make a sound choice or use the device properly.
But Scott does see significant cost savings. "It's really just a lot like going online to get your boarding pass for a flight," she says. "At first, the industry said ‘consumers will hate this. Because they would much rather engage with a real person at the counter.'" Now, she says, it's rare to find someone who would not prefer to check in online.
A proposed Centers for Medicare and Medicaid Services (CMS) rule could have a negative impact on reimbursement for skilled nursing facilities (SNFs).
The proposed rule, released on May 1, calls to implement a new case-mix classification model, known as Resource Utilization Group, Version Four (RUG-IV), for FY 2011. Some of the changes incorporated into RUG-IV significantly deviate from the currently used model, RUG-III.
Medicare uses a case-mix classification system to assign a nursing home resident to a RUG category based on his or her medical conditions and the resources needed to provide care. Each RUG category is tied to a Medicare payment rate. Based on results from the Staff Time and Resource Intensity Verification (STRIVE) project, CMS believes that the RUG-III system is no longer an effective way to determine resource time required to care for certain conditions.
Some of the changes incorporated into RUG-IV are:
Number of RUG categories will increase from 53 to 66
Special Care category will split into two separate categories: Special Care High and Special Care Low
Impaired Cognition and Behavior categories will combine into one category: Behavioral Symptoms and Cognitive Performance
Revised qualifiers to classify into residents into RUG categories
Adjustments to activities of daily living (ADL) index, including RUG-IV ADL score ranges from 0 to 16, whereas RUG-III ADL score ranges from 4 to 18; and revisions to the eating component ADL score to better categorize residents who receive feeding assistance
Revisions to calculation of therapy minutes
Modified look-back period for items in section P1a of the MDS 2.0, Special Treatments and Procedures, to include only those services provided while patient is a resident of the SNF
Just one week after its members were appointed, the new Health Information Technology (HIT) Standards Committee, which is advising the Office of the National Coordinator for Health Information Technology, hit the ground running May 15 with its first meeting in Washington. Another panel, the Policy Committee, which is advising the national coordinator on implementation issues, met four days earlier.
Under an expedited process, the Department of Health and Human Services is requiring the standards group, which was created under the federal economic stimulus legislation earlier this year, to publish an interim final rule with an initial set of standards, implementation specifications, and certification criteria for electronic use and exchange by Dec. 31, 2009.
In a healthcare system, there is "no part of the picture . . . that is more important than how we manage information," said National Coordinator David Blumenthal, MD, in opening the first standards committee session. "And no part of the management of information is more important than the technologies that we use to provide that management capability."
Blumenthal said the management capability “is going to make healthcare better and more efficient. If it fails, we will have great disappointment and indeed great jeopardy for our healthcare system going forward."
John Halamka, MD, chief information officer at Harvard Medical School, and vice chair of the committee, said the panel may initially focus on health information technology standards in transmission and exchange related to electronic prescribing, laboratory results and clinical summaries, quality measurements, and care coordination.
"Then think about how to stretch ourselves a little bit so we can get to that 'meaningful use' you're looking for," he said.
Although there is now no "crisp description" of what “meaningful use" is yet, "we have from the policy . . . a direction where they are heading," he said.
Jonathan Perlin, MD, chief medical officer with the Hospital Corporation of America and chair of the Standards Committee, said that in many ways, the initial meeting may be most complex meeting "because it is one where we set the agenda [with] the pieces just beginning to come into play."
"But there are some things that I think we can reasonably anticipate," Perlin said. A committee's goal should be "to emulate [hockey star] Wayne Gretzky and skate . . . to where the puck will be."
The government could rein in aggressive marketing practices of health insurance companies, regulate their premiums, and allow workers to drop out of group health plans to seek a better deal on their own under legislation being developed by leading Democratic senators. The Senate proposals are broadly similar to ones being drafted by the chairmen of three House committees. Democrats in both houses would vastly expand federal regulation of insurance to guarantee that all Americans have access to affordable coverage.
When President Obama won approval for his $787 billion stimulus package, large sections of the 407-page bill focused spending to create a nationwide network of electronic health records to launch the reform of America's costly healthcare system. But it also represented a triumph for an influential trade group whose members now stand to gain billions in taxpayer dollars. A review found that the trade group, the Healthcare Information and Management Systems Society, had worked closely with technology vendors, researchers, and other allies in a sophisticated, decade-long campaign to shape public opinion and win over Washington, DC.
