Harold D. Miller, president and CEO of the Center for Healthcare Quality and Payment Reform, discusses a fundamental barrier to shifting payment models in healthcare: Some providers mistakenly think all they have to do is tweak existing fee-for-service billing structures without understanding what drives costs in the underlying payment system.
Harold D. Miller, President and CEO
Center for Healthcare Quality
and Payment Reform
The shift away from volume-based, fee-for-service billing towards value-based reimbursements is gaining momentum and will be largely in place over the next few years. And yet a surprising number of healthcare providers really don't grasp the details of how value-based reimbursements work.
Harold D. Miller, president and CEO of the non-profit Center for Healthcare Quality and Payment Reform, says many providers mistakenly believe that all they have to do is tweak existing fee-for-service billing structures without identifying potential savings or understanding what drives costs in the underlying payment system.
Miller, the author of a Robert Wood Johnson Foundation-funded report called Making the Business Care for Payment and Delivery Reform, spoke with me this week about what providers must do to build an effective business case for value-based care. The following is an edited transcript.
HLM: Where are we on the fee-for-service/value-based care timeline?
Miller: It could be the dominant model within the next five to 10 years, but it is a matter of how quickly physicians and in particular physicians in hospitals meet with the purchasers of care— the employers— to work that out. It's about how soon both side come together and create the win, win, win that is good for patients, providers, and purchasers.
HLM: What are the stumbling blocks on the road to value-based care?
Miller: Most health plans and Medicare are trying to change the way care is delivered and reduce costs by piling on pay for performance and shared savings on top of fee-for-service. The problem is that if you don't change the underlying payment system, you don't change the incentives and the barriers that it creates.
For example, one of the best ways to keep people with chronic disease healthier and out of the hospital is for a physician practice to hire a nurse to educate and encourage patients to call when they have a problem. The problem is that doctors don't get paid for nurses and they don't get paid for answering phone calls. So practices are forced to lose money under fee-for-service to deliver better care, even though it would actually save money by keeping the patients out of the hospital.
HLM: Is value-based healthcare a particularly challenging sector?
Miller: Every patient is different, but on the other hand, how do health insurance companies operate? The law of large numbers says that on average, patients are fairly similar. You don't have to deliver the exact same treatment to everybody to estimate on average what it is going to be like.
If you get the unusually expensive case—the patient who is an outlier with unique health problems— that is what insurance is for.
On the other hand, saying 'We shouldn't be giving an MRI to everyone who comes in with lower back pain. Most of them should probably go to physical therapy first.' That is something you can do across a broad number of patients. That is going to save money on average and probably be better for the patients.
HLM: Is there common ground for fee-for-service and value-based models that providers can build on?
Miller: A lot of the payment reforms that are being done actually build on fee-for-service. The idea is you don't just leave it in place and try to pile something on top. The problem with fee-for-service now is that it says you get paid the exact same amount to do something whether you do it well or poorly and whether or not [or whether] there are complications or infections that occur. And in fact you may get paid more.
But you don't fix fee-for-service by sticking little penalties or bonuses on top. You have to change the fundamental way it is delivered.
For example, for patients who have health problems, we are looking at payments based on the patient's condition and not based on exactly the procedure you used. A good example is delivering a baby. You get paid more to do a caesarian section than you get paid than a vaginal delivery. Yet the vaginal delivery takes longer, and is better for the mother and the baby.
So why do we now have a 33% C-section rate in the country? Because the fees we pay are not based on the actual value.
HLM: Why does value-based care create so much unease among many providers?
Miller: A lot of the anxiety comes because people don't have the data. You have to have access to good data and in most cases healthcare providers can't do that. Medicare has only just recently started to release data, so that someone could actually do the kind of analysis that I recommend in my report.
Most health plans treat their data as a proprietary secret, but there are a number of communities around the country that have multi-payer claims databases where people can do these kinds of analyses.
HLM: Why should providers welcome the switch to value-based care?
Miller: You could actually do better in a value-based payment model. People have the perception that somehow it is going to be worse, but the sooner you get into it the better you may be able to do because you are able to capture a lot of the value out there now that isn't being captured.
Rather than staying in fee-for-service and hoping you may get a small increase in fees or that you don't get a cut in fees, it's better to ask 'Can I redesign care in a way that would allow me to be paid significantly more?'
Medicare has done a demonstration that has been operational now for several years called the Acute Care Episode Demonstration that bundled together hospital and physician payments for orthopedic and cardiac procedures and the physicians were able to earn up to 25% more than their standard fee-for-service payments by being able to redesign care and reduce the costs. That is far more of an increase in pay quickly than you could ever get by simply staying in the existing fee-for-service model.
HLM: Who should be at the table when providers build the business case for value-based care?
Miller: Step No. 1 is changing the way care is delivered. It is the physicians on the front lines who have to say 'Where do we think we are actually doing too much of something we shouldn't do or that we are not providing good care to the patients?'
Then you have to get the COO or the CFO to say 'Let's work the numbers.' Typically, you don't find those two parts of organizations working together. Doing spreadsheets is not the physicians' skill and providing care is not the CFO's skill. But if you can get them to come together, that is where the magic happens.
You say to physicians 'Where do you think you could redesign care if somebody gave you the flexibility to be paid differently, to be paid for things that you aren't being paid for today?' When I talk to physicians, they all have ideas but nobody asks them.
The typical approach is that physicians say 'Pay me for these things that you don't pay me for today.' The health plan, Medicare, employers or whomever says, 'Wait a minute. That will increase costs if you are going to be paid for something new.' If you think it is going to be better, run the numbers to see if it actually will save money. What will you do less of and what will that save?
Get everybody in the room. Get their ideas. Figure out which subset appears to be the most promising. Do the detail work and go to payers to put it in place. If you can show success then that encourages people to do more. Not every case will it be a savings proposition.
Which of those things is there really a business case for, and if there seems to be a business case then let's do a finer analysis to show that and take it to the payers to say 'how about a deal here?' Even if you can't get the perfect data, using approximate data to at least see if it looks like a business case then tells you which things to focus on.
HLM: How soon could a value-based model see a return on investment?
Miller: For many of these things, the savings can happen very quickly. A lot of what has been done in healthcare has been desirable, but has a long-term payoff. There is a lot of focus on better management of diabetes and hypertension; all very desirable but it doesn't save a lot of money this year.
On the other hand, if you focus on people going unnecessarily to the emergency room and getting unnecessary tests and [you] figure out how to redesign that care, you save money immediately because you are avoiding the unnecessary care. Thirty day re-admissions are a perfect example.
HLM: Who do providers speak with on the payer side?
Miller: The focus will differ. Medicare doesn't have a whole lot of interest in maternity care, whereas for businesses and Medicaid maternity care is in many cases their biggest expenditures. Everyone is interested in chronic disease. The distinction I make is between the purchaser and the payer. The purchaser in commercial insurance is the employer.
In fact, 60% of commercially insured employees in the country are in self-insured employer plans. The deal you are working out is actually with the employer and not the health plan. All the health plan is doing is processing claims. One of the challenges for commercial health plans is that value-based isn't necessarily a good business proposition for them. They may have to incur costs to change the payment system, but the savings don't go to them, they go back to their self-insured accounts.
HLM: What influences will insurance exchanges and consumer-driven healthcare play in the business case for value-based care?
Miller: It could be a potential advantage if different provider organizations get beyond this fairly narrow shared-savings model to the point where they are actually able to take accountability for populations of patients and can price that.
They could go on the exchange and allow people to sign up for this ACO and pick a primary care physician there and work with the coordinated set of docs at a lower cost and higher quality than simply picking a generic health plan. It's kind of halfway between the traditional HMO/PPO models. You are picking who you want to lead your care. You don't necessarily have to be limited to once set of docs or have a gatekeeper for everything.
Some retailers, reasoning that they are "smart about efficiency and productivity and standardization and using digital technology and getting closer to the customers, believe that they can… really change the way that care is delivered and paid for in this country," says one analyst.
In Part 2 of an interview with HealthLeaders Media, analysts Vaughn Kauffman, Health Industries Principal at PwC and Ceci Connolly, the Managing Director of PwC's Health Research Institute discussed their views on what we might see in the coming months and years as retail businesses carve out a larger role for themselves in healthcare delivery. The following is an edited transcript. See Part 1.
HLM: It sounds like you believe that traditional providers could learn a lot from retailers.
Kauffman: They are actually. Over the last several years I've seen more and more recruitment happening outside of the traditional healthcare area at the senior level. [This is] to try to drive some of this change and… anchor their business and their operation where the consumer is at the center of that model as opposed to outside and navigating in.
We are seeing it all the way through not only in terms of the plans being designed, [but] all through operations, and even how the revenue cycle process is looked at. They're looking for ways to engage the consumer beyond the few hours they might spend in the hospital.
How do they become more relevant in their day-to-day lives, not so much Big Brother-like but in ways they can help inform decisions of health and fitness, etc. and become more of an advocate for their health rather than a treatment center for certain issues.
Connolly: On the flip side, healthcare can get complicated. Think about patients with multiple chronic conditions. They need really good health coaches or care coordinators. They need a whole team around them. It would be naïve to suggest that now everybody can head to the retail store and manage their health on their own and it is all going to go great.
It is much more complex than that. What we are really trying to do is figure out where you can put together these smart care teams.
Kauffman: We think about it as the formation of multiple delivery systems as opposed to the replacement of the traditional monolithic structure. But it's always going to be situational. We aren't going to have cardiologists in the retail setting, but as innovation continues to happen where diseases can be more easily managed because of technology and advances in medicine and treatment, it opens up the door for alternative channels to provide that type of support where it doesn't have to be done in the more expensive hospital setting.
That is what we are saying. Who knows if it will be two or three or four different types of delivery options, but there are multiple ones out there now that are being experimented on and it really comes down to figuring out how to navigate.
HLM: Can traditional providers compete with retailers, or will they pursue alliances?
Kauffman: There is some overlap in services. You think about retail clinic setting versus an urgent care setting versus the traditional hospital setting. And then home healthcare and telemedicine are another decision point that consumers need to make.
Partnerships are going to be really important because of this overlap and because of the risk of this decentralization of healthcare confusing consumers even more around 'what do I do and when do I go to a retail clinic versus urgent care or when do I stay home and call somebody?'
That is going to evolve over time, but it is going to be important to have these partnerships form because when you start to add up the capabilities, the retailers ability to engage the consumer whether it be a brick-and-mortar or an e-commerce platform, to combine that with the clinical knowledge of urgent care centers and hospitals, we are going to see some interesting innovation occur.
One of the reasons why this is happening now is because of the innovations in healthcare over the years. The ability to treat some diseases in a much more manageable way has opened up the opportunity to provide new ways to deliver care.
There are a lot of examples where at one point, it was a very acute disease that required a highly specialized physician to treat it. But it's now something you can do at home on your own through technology. It is that evolution that is opening up the door to allow new entrants to come in, leveraging what their core capabilities are, which is engaging consumers, brand awareness, providing convenience and trust, and offering that platform to consumers to give them choice, which is ultimately what they want."
HLM: Will we see traditional retail strategies used to attract healthcare consumers? Will the corner pharmacy use free flu shots, for example, as a loss leader to get people in the door?
Connolly: It is certainly possible. It depends upon the core business for the entity. A big retailer or grocery or pharmacy chain has different business models and numbers they work through. Some may be very interested in volume and foot traffic. But we have been struck by the number of entities, [of] the Fortune 50 companies, more than 75% of them identify themselves as being in the healthcare business and they are not hospital or insurance companies.
These are big technology companies, these are telecommunications, retailers. They are making investments because they feel that there is a great deal of opportunity in healthcare right now. Not only is healthcare about 15% of GDP and growing, but you start adding on the wellness industry, which is another few hundred billion dollars, and they see opportunities and money to be made.
HLM: What is retail medicine going to look like in five years?
Kauffman: As long as the consumer continues to bear more of the risk of the cost of healthcare, this is something that is going to move forward and should not be viewed as a fad. The retail and technology players will continue to look at ways to steal revenue from traditional players because they are looking at their own challenges to try to grow.
There are going to be a lot of companies trying and the ones that succeed are those that within their own organizations have the clout to help steer the ship in a particular way. If healthcare is viewed as a side project for one of these large retailers or technology organizations it is likely not going to survive under core business pressures.
HLM: With so many traditional providers complaining about tightening margins, why are retailers so eager to get into the sector?
Connolly: Healthcare is a sector that has not made any notable productivity gains in years, if not decades. The smart players outside of healthcare are looking at this and thinking 'we have been through a similar journey in our own core business and we are pretty smart about efficiency and productivity and standardization and using digital technology and getting closer to the customers,' so they believe that they can bring those lessons from elsewhere and really change the way that care is delivered and paid for in this country. It is going to be a fascinating journey to watch to see if that gamble makes sense.
On the question of timing, there are a couple of mile markers that are worth keeping in mind. An important on is 2017 when states can open the public exchanges to employers. Employers are also looking at private exchanges and this becomes very relevant because that is more and more individual retail customers shopping for healthcare and when you flip that business model from wholesale to retail that is when you see this changing dynamic pick up speed.
HLM: Do you foresee retailers acquiring hospitals or other traditional venues?
Connolly: It's been widely reported that Walgreen's is running three ACOs right now. I don't know if that means they want to run 300 ACOs but it is interesting that they are experimenting with that. CVS is a licensed Medicaid provider in the state of South Carolina, at 28 CVS pharmacies. Overall we are seeing experimentation. And this is a real testing period for these players to see what they might be good at.
The rise of high-deductible health plans means more consumers will have healthcare coverage that mainly provides protection against catastrophic injury or illness. As these plans become more common, pharmacy chains and big box retailers are taking a greater interest in expanding their healthcare provider capacities.
Some analysts believe that the greatest fundamental changes to traditional healthcare delivery will come from without, not from within.
The rise of high-deductible health plans means more consumers will be on the hook for much of their medical costs, with their coverage mainly providing protection against catastrophic injury or illness. As these high-deductible plans become more common, traditional retailers such as CVS Caremark, are taking a greater interest in expanding their healthcare provider capacities.
In Part 1 of an interview, analysts Vaughn Kauffman, Health Industries Principal at PwC and Ceci Connolly, the Managing Director of PwC's Health Research Institute, discussed their views on what we might see in the coming months and years as retail businesses carve out a larger role for themselves in healthcare delivery. The following is an edited transcript.
HLM: Why do you believe that retail medicine is a potential game changer for care delivery?
Kauffman: Consumers will continue to look for cost of care, convenience and price as they bear more of the costs. Whether it be the pharmacist or other retail channels, we think that because of the evolving healthcare economies, there are roles that these retailers and pharmacy organizations will play in delivering care. We also think about the scope of healthcare beyond the traditional patient setting and around the whole spectrum of health and healthcare and fitness and how that plays into the equation.
That is opening up more opportunities for retailers. Everybody is trying to figure out how to engage the consumer differently. Healthcare models should be putting the consumer at the center of the system as opposed to having them running around through a fragmented environment. Because of that, organizations are trying to figure out how to better engage with consumers and obviously retailers have a great way of doing that, whether it's because of their physical footprint with their storefront or even through their e-commerce presence.
HLM: Do traditional providers understand that retails could pose significant competition?
Connolly: We think this is powerful and we are on the verge of a significant turning point for healthcare and as Vaughn says it's with the consumer at the center. You mentioned the impact of being on high-deductible plans. We are seeing that every day. We're also seeing that employers are trying to be savvy about getting value and they're trying to teach their employees to be much better about shopping for value in healthcare.
To the question about traditional players in the health industry, we see it running the gamut right now. There are some very innovative leading edge companies in the health industry that are using Facebook and [other] social media to connect with their customers.
They are starting to push out price information because they know that transparency is important to consumers. They are using their data analytics to push population health. But there are many other providers that are frankly just trying to keep up quarter-to-quarter right now and they are still a little stuck in the fee-for-service model. They are going to have to find a way to make this transition or there is the risk they may get left behind.
HLM: What advantages do traditional retailers have over traditional medicine with consumer-driven healthcare?
Kauffman: There are some very distinct advantages for retailers. Their business model has evolved in understanding the wants and needs of consumers. Traditional healthcare organizations, outside of maybe the physician relationship with patients, are still trying to figure out their relationship with the consumer. In fact, the definition of customers is changing from what use to always be thought of as the employer as the customer to the individual as a consumer of healthcare.
There is a distinct advantage that retailers have with brand recognition and trust of the brand. You know what you get when you walk into a certain retailer. It is not that same way in healthcare and a lot of traditional companies in healthcare recognize that. We are seeing roles being formed at the senior level such as chief experience officers.
They are hiring outside of the industry, particularly in the hospitality industry. The focus is on the customer that other industries' business models have been anchored on. The convenience factor is an advantage as well. How often do you walk into a retailer on a given week versus walking into a hospital setting?
The ability to capture the hearts and minds of consumers is much easier for retailers because of the frequency that people walk in, and I don't want to discount the e-commerce presence that organization have. The interactions are much more frequent. Once you get a captive audience there is an ability to drive that engagement to another level.
HLM: Are you saying that brand loyalty will become more important with consumer-driven care?
Connolly: Brand loyalty is significant and it is something that has been a challenge for healthcare companies. We know from our survey data, that insurers in particular and pharmaceutical companies rate pretty low on the popularity and loyalty scale. Individual doctors do better. But even when you start talking about hospitals there are a lot of mixed feelings by consumers.
Consumers tell us over and over again that they are willing to switch if either they have a bad experience at one place or they find that they can get the same quality care at a lower cost somewhere and one other thing on the convenience. The average diabetic will see their pharmacist perhaps 30 times a year and they will see their doctor three times a year.
You have that ongoing relationship and every time you walk into a pharmacy or a big retail store, you will also probably pick up your test strips and you might pick up some food and do some other shopping and the idea that it is all there is another aspect of the convenience.
In our October Intelligence Report, 90% of healthcare leaders indicated a commitment to improve the overall health of a defined population. What steps is your organization taking toward population health management, and what have been some of the challenges and successes you've encountered?
Elisabeth Stambaugh, MD, FACOG
Senior Medical Director
Cornerstone Health Care
High Point, NC
On commitments and conflicts: All of our contracts include some gainshare portions. We are hoping to move even further than that. We established a couple of specialty clinics, one of which is a congestive heart failure clinic that has significantly reduced hospitalizations and especially rehospitalizations. It has put us a little bit at loggerheads with the hospital because their inpatient population has gone down so much with our success. I also sit on the hospital board so I can appreciate both sides.
On building a value-based clinic: We identified patients within our ACO and they were enrolled in this multidisciplinary clinic with psychologists, nutritionists, pharmacists, physicians, and advanced practice professionals who got the patients to come in very regularly. We have nurse navigators who reach out to patients instead of waiting for them to reach out to us.
On problems with payers: Probably the biggest obstacle in all of our population health initiatives is getting the flexibility with the payers. For instance, getting patients into the heart function clinic frequently means they often have more copays. Whereas in the future when we get to full risk, we will be able to say 'you don't have copays. If you go to the emergency room you will have a huge copay so come see us first for no copay.' The other part of dealing with the payers that has been so frustrating is that in order to truly analyze the data, the payers have to be willing to give it to us. Some of that we can get from our own records but some of it we need from payers and that has been like pulling teeth.
Ben Humphrey, MD Former CEO
The Medical Group of Ohio
Columbus, OH
We are a physician-owned organization but we are partnered in a physician-hospital organization called Ohio Health Group.
We have a variety of quality metrics that year after year have been improving. Through our processes we can provide actionable data to physicians at the point and time of care so that they can enhance their performance. We've had a very successful pay-for-quality program. Starting last year, we began a total cost-of-care gainsharing arrangement with payers with the goal in time that we will probably be on the risk side of that.
The challenges have been ongoing but we led the system to understand that we must become clinically integrated. We invited our hospital partner to join us in that endeavor. The biggest hurdle was engaging physicians but that is a hurdle we crossed several years ago. We then engaged what we called our physician support tool, which is a data warehouse where we can collect data from the payers, the practices, the hospitals, the laboratories in the area, and then feed actionable data out to the practice through a web-based physician support tool. Physicians are pretty competitive. If you give them data that says "you are not doing as well as you did last year" or "you're not as good as you think you are here at the bottom quartile of your specialty," it's amazing what they come up with.
Jim Nathan President and CEO Lee Memorial Health System
Fort Myers, FL
While we and our community are not fully ready for comprehensive population health management, we have been working hard with limited resources to build competencies and capacity to transform care delivery to increase value to our community, including patients, business, payers, and other health providers. We have a 300-plus employed physician group, Lee Physician Group, that is transforming into [using] more team-based care, care coordination, [and] data to manage performance at the point of care.
LPG is also pursuing patient-centered medical home status including accepting certain pay-for-performance arrangements. We are using our own employee health plan with 15,000 participants as an early test case for population health and chronic disease management while repurposing our nearly 20-year-old physician hospital organization to collaborate with independent, contracted, and employed physicians to establish a quality-focused model for clinical integration. We are developing knowledge of how to use data mining and information technology tools for data driven medical management. We are developing an extensive continuum-of-care model for nonacute care services through both owned and independent community health and human service providers.
Early successes include redesigning our nationally acclaimed care management services to better coordinate care across the continuum into multiple settings including the home, our care transitions program, and telehealth, plus early stages of house calls, a skilled nursing physician specialist program, and partnering with independent nursing homes to reduce unnecessary readmissions.
Donald R. Lurye, MD CEO
Elmhurst (Ill.) Clinic, LLC
We are working hard both within Elmhurst Clinic and at a health system level to become experts at population health. Within our practice, we are expanding the use of RN care managers to assist physicians with the care of chronic illness and using data from our electronic health records to help them do so. This includes proactive patient outreach, prescheduling of labs, and connecting patients to various support services.
We are also reexamining our workflow and trying to move our culture from reactive, patient-initiated care to, at some level, thinking about all of our patients every day. Elmhurst Memorial Hospital's merger with Edward Hospital and the creation of the Edward-Elmhurst Healthcare system has allowed us to take part in a multipayer clinical integration effort. In the near future, we look forward to having all of Edward-Elmhurst Healthcare's physician practices and hospitals on a single EHR platform, all measuring quality and utilization in the same manner.
Physicians respond well to the concept of population health and the opportunity to improve both quality and service. Certainly moving to a single EHR will be a challenge, as will working through issues of physicians' continued desire for autonomy and their angst over increasing collaboration with colleagues currently viewed as competitors.
A Department of Justice complaint alleges that for more than 10 years, four hospitals in Georgia and one in South Carolina paid kickbacks to Georgia-based Hispanic Medical Management, which operated an obstetric care clinic serving mostly undocumented aliens.
The federal government said it will intervene in False Claims Act suits leveled against hospitals owned by Tenet Healthcare Corp. and Health Management Associates Inc., which have been named in an alleged kickback scheme involving obstetrics services for undocumented aliens.
The Department of Justice complaint alleges that starting in 2000 and continuing for more than 10 years, four hospitals in Georgia and one in Hilton Head, SC paid kickbacks to Georgia-based Hispanic Medical Management, which operated the Clinica de la Mama. The clinic was paid for obstetrics care to mostly undocumented Hispanic women in return for labor and delivery referrals to the hospitals, who then billed the Medicaid programs in Georgia and South Carolina.
In some cases, prosecutors allege, the hospitals obtained Medicare reimbursements based on the influx of low-income patients. Undocumented aliens are not eligible for Medicaid benefits in Georgia and South Carolina under most circumstances. However, some emergency labor and delivery care is reimbursed. The whistleblower suit alleges that false reimbursement claims were made to the Georgia Medicaid's emergency medical assistance program for newborn care.
The three Tenet hospitals in Georgia and one hospital in South Carolina that were named in the whistleblower suit are: Atlanta Medical Center, North Fulton Regional Hospital, Spalding Regional Hospital, and Hilton Head Hospital.
"My office has made the investigation of healthcare fraud a priority," Michael J. Moore, US Attorney for the Middle District of Georgia, said in prepared remarks. "In a time when too many people were struggling to get healthcare for themselves and their children, Tenet and these hospitals plundered a system set up for those truly in need. This kind of scheme drives up costs for everyone, not just the vulnerable patients and groups like those targeted in this case."
Tenet issued a statement strongly denying the government's accusations.
"… the agreements between Hispanic Medical Management and Atlanta Medical Center, North Fulton Hospital, Spalding Regional Hospital and Hilton Head Hospital provided substantial benefits to women in underserved Hispanic communities," the statement said. "By ensuring that pregnant women received prenatal care and appropriate treatment during birth, these programs increased the likelihood of a safe birth and a healthy baby while reducing the overall cost to state Medicaid programs. We will continue to vigorously defend against these allegations."
The fifth hospital named in the suit, HMA's Walton Regional Medical Center, in Monroe, GA, was renamed Clearview Regional Medical Center when Community Health Systems finalized its $7.6 billion acquisition of HMA last month.
Calls Wednesday to HMA, and CHS were not immediately returned. It's not clear how CHS's acquisition of HMA will affect the federal suit and who will be held accountable if a settlement is reached.
The whistleblower suit was brought forward in 2009 by Ralph D. Williams, the former CFO at HMA who claims that he was fired after he discovered the payments. Williams said in his complaint that HMA paid Clinica between $15,000 and $20,000 each month for the referrals, and that the payments were disguised as "translation services" and "eligibility determination services."
Williams said that executives at HMA Monroe anticipated a 56.2% rate of return on a $1.8 million investment in Clinica's "Hispanic Maternity Program."
Williams alleged in the suit that he was told by HMA executive Gary Lang that a similar arrangement with Clinica existed at Tenet's Hilton Head Hospital, where Lang once worked as a marketing executive. The suit also alleges that HMA "cloned its kickback model from Tenet in order to receive additional Medicaid patient referrals and revenues."
Under the whistleblower provisions of the False Claims Act Williams could be eligible for a portion of any settlement money. The lawsuit is being heard in the Middle District of Georgia.
HMA and its former CEO Gary Newsome are also defendants in a separate whistleblower lawsuit out of South Carolina that alleges that the Naples, FL-based company orchestrated a "massive scheme to boost company profits and defraud Medicare and Medicaid by unlawfully inducing and pressuring hospital emergency room doctors to increase the rate of ER-to-hospital admissions over a period of at least four years."
The Justice Department said that since January 2009 it has recovered more than $19 billion through False Claims Act cases, with more than $13.4 billion of that amount recovered in cases involving fraud against federal healthcare programs.
Following concerns from physicians and some US senators, CMS says it will do end-to-end ICD-10 testing with a small sample group of providers selected to represent "a broad cross-section of provider types, claims types, and submitter types."
In an apparent nod to concerns raised by physicians, payers, hospitals and Congress, the federal government said Wednesday that it would conduct limited "end-to-end testing" of the new ICD-10 diagnostic coding set this summer with "a small sample group of providers."
"End-to-end testing includes the submission of test claims to [the Centers for Medicare & Medicaid Services] with ICD-10 codes and the provider's receipt of a Remittance Advice (RA) that explains the adjudication of the claims. The small sample group of providers who participate in end-to-end testing will be selected to represent a broad cross-section of provider types, claims types, and submitter types," CMS said in a memo to providers.
The goal of the end-to-end testing is to demonstrate that:
Providers can successfully submit claims containing ICD-10 codes to the Medicare FFS claims systems.
CMS software changes made to support ICD-10 result in appropriately adjudicated claims based on the pricing data used for testing purposes.
Accurate Remittance Advices are produced.
Details about the end-to-end testing process will be disseminated "at a later date," CMS said.
ICD-10 is scheduled to go live on Oct. 1, despite the complaints from many in the provider community that they aren't ready. The American Hospital Association and the American Medical Association have called for delays in ICD-10 implementation or at least more comprehensive end-to-end testing to allow providers, payers and software vendors to more thoroughly test their systems.
The AMA last week released a study it sponsored showing that projected physicians' implementation costs for the federally mandated ICD-10 medical coding set will be as much as three times higher than initial estimates. Along with the study, AMA President Ardis Dee Hoven, MD, released a copy of the letter she sent to Health and Human Services Secretary Kathleen Sebelius asking her to "strongly" reconsider the ICD-10 mandate.
On Wednesday, Hoven offered guarded praise of CMS's decision to conducted limited end-to-end testing.
"While the AMA is pleased by the federal government's decision today to conduct end-to-end ICD-10 testing, the AMA continues to urge CMS to reconsider the ICD-10 mandate during a time when physicians are struggling to keep up with many other costly, federal mandates," Hoven said in prepared remarks.
"The AMA urges CMS to conduct the testing as soon as possible and to ensure that there is an adequate sample which includes a variety of different sized medical practices and specialties."
The AMA continues to work toward the implementation deadline even though its House of Delegates has called for the repeal of ICD-10. "Adopting ICD-10, while it may provide benefits to others in the healthcare system, is unlikely to improve the care physicians provide their patients and takes valuable resources away from implementing delivery reforms and health information technology," Hoven said Wednesday.
CMS was also feeling pressure from Congress to address the concerns raised by providers. This week, four Republican U.S. Senators—all of them physicians—sent a letter to CMS Administrator Marilyn Tavenner questioning the plan to conduct limited "front-end" testing for ICD-10.
"Given the size and scope of the potential transition to ICD-10, the brevity and limited scope of this test is worrisome, said the letter, signed by Sens. Tom Coburn, MD (R-OK), John Barrasso, MD (R-WY), John Boozman, OD (R-AR), and Rand Paul, MD (R-KY).
"This change will impact millions of physicians and patients, and hundreds of billions of dollars in payments that flow through Medicare and Medicaid. Other major federal IT projects—such as the implementation of Healthcare.gov—have demonstrated the importance of thorough pre-testing every aspect of new systems, both the front-end and back-end components. System-wide errors and delay could adversely impact both patients' own pocketbooks and provider cash flows."
An advocate for rural health says the rural hospital community in Georgia, rife with closings, is so financially strapped that "about 10% of our population [can be considered] Third World Nation health status." More hospital closings are "inevitable" and the trend could spread to the rest of the country, he says.
Jimmy Lewis, CEO of HomeTown Health, LLC
Lower Oconee Community Hospital, a 25-bed critical access hospital in Glenwood, GA in the southeastern corner of the state, announced this month that it will close because of financial pressures. The grim news for the nearly 7,900 people of Wheeler County marks the fourth closure of a rural hospital in Georgia in the past two years.
Attempts to contact the hospital proved fruitless. The plug has been pulled on hospital's website and nobody answered my telephone calls. CEO Karen O'Neal told WMAZ television that the 100 or so employees at the hospital had been laid off, and that "this restructuring is being done to provide sustainable medical services in the Glenwood area." She also told the television station that the hospital's owners are contemplating "some kind of urgent care center.''
Jimmy Lewis, CEO of HomeTown Health, LLC, an advocacy association for 56 small hospitals in Georgia, believes that closures of rural hospitals in his state could serve as a bellwether for the rest of the nation. Lewis spoke with HealthLeaders Media earlier this month, and the following is an edited transcript.
HLM: Georgia has seen four rural hospitals close in the past two years. What is driving this?
Lewis: Because of the incremental reduction in Medicaid over 10 years or so in Georgia and other issues, many of these critical access hospitals have about a seven-year death spiral that's a function of the cost-to-charge ratio. The rural hospital community in Georgia is financially strapped.
For the most part, they have financial losses due to operations, and if they are surviving, it's almost entirely on subsidies such as the disproportionate share payment and more especially payments from local and county governments. Reimbursements are down and they are continuing to fall. We are looking at losing disproportionate share payments. We are at a point where we have insufficient reimbursements.
Then along comes the economic downturn. Unemployment goes up; self-paid uninsured soars. We have uninsured in Georgia at about 17%. We have unemployment in some of these rural communities at 15%-18% plus the underemployed. The consequence is that we have a population of hospitals in rural Georgia that are in great jeopardy.
HLM: Do you anticipate more rural hospital closings in Georgia?
Lewis: We have a situation in Georgia where more closings are inevitable.
HLM: Is the rural hospital crisis in Georgia a bellwether for the rest of the nation?
Lewis: That would be correct. Georgia may be at the front end of the pack because of these incremental reductions in Medicaid and because we have so many critical access hospitals. As these rural hospitals close, it dominoes up to the next-larger hospital and the next-larger hospital and as that occurs, it is going to be a big problem. We just move the self-paid and the uninsured up to the next level of hospitals, and we've got a lot of large hospitals whose ERs are bursting already and this is going to compound that problem.
HLM: What will be the effect on rural healthcare access with these closings?
Lewis: I represent 56 hospitals and when I look at the population in those counties, that is about 1 million people. Georgia is a 10-million-person state, so we have about 10% of our population that we can move into Third World Nation health status. They will have to drive 30 to 60 miles to get healthcare.
We have a large part of Georgia from Macon to Augusta where there are basically no OB deliveries. We've got 32-of-33 critical access hospitals that no longer deliver babies. We've got 12 to 14 of the next larger hospitals that no longer delivery babies. We have about 45–47 hospitals in Georgia that no longer deliver babies. We are seeing a significant reduction in services and access and that creates a situation of higher acuity patients when they do show and it's going to cost the governments supporting it a lot more money.
HLM: Has Georgia's decision to forego Medicaid expansion money been a factor in these closings?
Lewis: Our hospitals have been in trouble as a result of what has happened since 1999. That is what got us into the trouble. The issue of Medicaid expansion is how much money and how quickly would it come in and help those hospitals. Unfortunately, we may be in a situation where we are going to lose hospitals because of the last 10 years. That Medicaid expansion money, although it would be helpful, may not [have been there] in time.
HLM: Oconee had about 100 employees. What happens when those jobs leave the region?
Lewis: They clearly are the best jobs in the community and because most of those are higher paying healthcare jobs, they have to go if they can to the next-closest facility to try to get jobs there. And that is usually a 30-plus mile trip to get employment. People on the lesser-skilled side of that situation just go into unemployment. In Glenwood, I think the unemployment was over 15%. They just go into the unemployment rolls.
HLM: Where will people in Wheeler County go now for their care?
Lewis: They will have to go 20 to 30 miles in any direction to find a hospital. For physicians, when the hospital is gone, the physicians go and it creates a problem. Those people in those communities are going to struggle to find access. In many cases what ends up happening is if the emergency medical services stay, they end up using the ambulance to carry low-acuity patients to healthcare when they don't have any other means of access.
HLM: Can Oconee and other rural hospitals restructure for different services, such as stand-alone emergency departments or urgent care centers?
Lewis: In Georgia there is some work being done legislatively to find a licensure vehicle that would allow restructuring to occur, but right now we do not have regulatory or licensing vehicles to allow for standalone emergency departments or anything like that.
HLM: What happens to the communities when these hospitals shutter?
Lewis: If there is not a hospital, there won't be any future economic development. If a hospital closes and the community has an industry, they have a strong possibility of losing that industry simply because the industry cannot assume the liability for accidents and healthcare for its employees if it can't find access to care.
These hospitals are economic engines and when they close, the community goes into an economic paralysis. Nothing ever goes back there again from an industry standpoint or a jobs growth standpoint.
HLM: Why are rural hospitals struggling even more than their urban and suburban counterparts?
Lewis: Rural hospitals do not have the population to support specialty services. Larger hospitals have in some cases very large sums of money entirely as a result of specialty services they provide including cardiology and orthopedics and oncology. In small rural hospitals it is a rarity to see a surgeon. It takes eight family practitioners to support one surgeon. It takes about 5,000 people to support a family practitioner. So you have to have 40,000 to support a surgeon. Well, that is just not there.
HLM: What needs to be done to keep rural hospitals viable?
Lewis: Somewhere along the line, a decision will be made that we will either try to address rural America or we will just let it go to Hell. Right now it is in the process of going to Hell because the payers don't have any sensitivity to save the rural segment.
It is easier for them to cut rates to rural hospitals because they have less ability to negotiate because they don't have the volumes. Until such time as policy makers mandate that insurance companies reconsider the rural part of the nation we are going to have a situation in Georgia and nationally where the people who live in rural communities are going to be very old and on Medicare, or they are going to be unemployed and uninsured or on Medicaid and it is going to be a tremendous financial burden on all the states.
HLM: Is there any good news out there for rural providers?
Lewis: If you look at what is coming out of Washington, there was a recent proposal to do away with critical access hospital designation. That is the vehicle that has kept those hospitals going and somebody wants to eliminate that! The only good news is those people in rural healthcare have the passion to help people and help them survive. The American spirit does live on.
A reduction in bad debt will come as more people obtain health insurance under the Patient Protection and Affordable Care Act, Moody's says. An improvement in earnings is expected mainly because 2013 was marred by declining patient volumes and the cuts to Medicare reimbursements under sequestration.
For-profit hospitals are expected to see a reduction in bad debt and favorable year-over-year earnings over the next 18 months and that has prompted Moody's Investors Service to upgrade its outlook for the sector from "stable" to "positive."
Moody's says the reduction in bad debt will come as more people obtain health insurance through Medicaid expansion or the health insurance exchanges under the Patient Protection and Affordable Care Act.
"The impact will vary among institutions based on factors including their location, since only 26 states and the District of Columbia have expanded their Medicaid programs under the act," says Dean Diaz, a senior vice president at Moody's.
The expected year-over-year improvement in earnings is expected mainly because 2013 was marred by declining patient volumes and the 2% cuts to Medicare reimbursements under sequestration.
"Our outlook is predicated on the year-over-year projections, and 2013 was a tough year for the sector, for-profit or not-for-profit," Diaz says. "There were a lot of volume and EBITDA (earnings before interest, taxes, depreciation, and amortization)declines so it creates a lower base for companies to grow off of. The prior year was lower, so we have an easier comparison as far as our growth number, because that is what our outlook is based off of."
"A piece of it is an expectation that we will see a little bit better growth in volumes… as we get more clarity around observation days and the two-midnight rule and we get more clarity as the projection period goes out over the next 12 to 18 months."
In addition, Diaz says the CHS/Community Health Systems Inc.'s acquisition of Health Management Associates and Tenet Healthcare Corp.'s acquisition of Vanguard Health Systems are expected to bring cost reductions and operational improvements to the sector, and to boost aggregate EBITDA growth in 2014.
For-profit hospitals will continue to compensate for in-patient volume declines by bolstering investments in out-patient services. "You've got a lot of investment and acquisitions of imaging centers, ambulatory surgery centers, and oncology," he said.
"Our measure of volume that we typically look at is the adjusted admission. That outpatient piece is bolstering it. There is more of a migration toward outpatient. Payers are looking to manage the costs of care and keep people out of the hospital when necessary. You are going to see the operators start to adjust to what I think is a secular change there."
In stark contrast, for the past six years Moody's has issued a "negative" outlook for the not-for-profit hospital sector. Officials from the bond rating agency said in December that the dour outlook is not likely to change anytime soon.
Diaz says that larger, for-profit health systems hold significant advantages in the market over most not-for-profit hospitals.
"These are multi-facility, multistate operations, whereas a lot of the ratings that are maintain on the not-for-profit side… are individual sole site that may not have the flexibility to do some of the things that the for-profits do, such as exit services or exit markets that don't work for them."
Diaz says for-profits aren't necessarily "cherry picking" the more affluent areas but that they are very deliberate when they pick the demographics and the areas they want to be in. "They will go to high-growth markets. They will research the demographics in that market as far as payer mix and employment so they do have that flexibility," he says.
"There is a bit of portfolio management that plays into the way these companies are built. They may have that market presence to have a stronger negotiating position with payers. They may also have more in the way of purchasing power that would reduce the cost of their supplies to provide that service. In that respect, they've got a benefit of scale and diversification that allows them to drive efficiencies across their portfolio, whether it be from the pricing perspective or the cost perspective."
In a letter to HHS Secretary Kathleen Sebelius, the American Medical Association asks her to "strongly" reconsider the ICD-10 medical coding set mandate, which the AMA says will place a "crushing burden" on physicians.
The American Medical Association on Wednesday released a study it sponsored showing that projected physicians' implementation costs for the federally mandated ICD-10 medical coding set will be as much as three times higher than initial estimates.
Couple with the release of the study, AMA President Ardis Dee Hoven, MD, released a copy of the letter she sent to Health and Human Services Secretary Kathleen Sebelius asking her to "strongly" reconsider the ICD-10 mandate, which takes effect Oct. 1.
"The markedly higher implementation costs for ICD-10 place a crushing burden on physicians, straining vital resources needed to invest in new health care delivery models and well-developed technology that promotes care coordination with real value to patients," Hoven said in the letter. "Continuing to compel physicians to adopt this new coding structure threatens to disrupt innovations by diverting resources away from areas that are expected to help lower costs and improve the quality of care."
To bolster support Wednesday, the AMA also introduced the #StopICD10 hashtag on Twitter.
A 2008 study by Nachimson Advisors estimated that the cost to implement ICD-10 averaged about $83,000 for a small practice, $285,000 for a mid-sized practice and $2.7 million for a large practice. However, Nachimson Advisors in a follow up study released this week for AMA found huge cost variables for each practice size based on specialty, vendor and software. Small practices costs ranged from $56,600 to $226,000; mid-sized practice costs ranged from $213,000 - $825,500; and large practice costs ranged from $2 million to $8 million.
Nachimson Advisors said that two-thirds of practices will likely fall into the high range of new cost estimates because they are expected to incur major costs for software upgrades to accommodate ICD-10. The study blamed the ballooning 2014 estimates in part on post-implementation costs, including testing and the potential risk of payment disruption. The Centers for Medicare & Medicaid Services has estimated that claims denial rates could increase 100% –200% in the early stages of coding with ICD-10.
In her letter to Sebelius, Hoven reminded the secretary that while the AMA is working however grudgingly toward the implementation, the association's House of Delegates has called for "repealing ICD-10 for the simple reason that it is not expected to improve the care physicians provide their patients and, in fact, could disrupt efforts to transition to new delivery models."
"The transition to ICD-10 represents one of the largest technical, operational, and business implementation in the healthcare industry in the past several decades. Implementing ICD-10 requires physicians and their office staff to contend with 68,000 diagnosis codes—a five-fold increase from the approximately 13,000 diagnosis codes in use today. The broad use of ICD-10 codes for determining reimbursement, coding in all healthcare settings, and healthcare coverage has not been done in other countries, making the U.S. implementation unprecedented," Hoven wrote.
The AMA also notes that software vendors have lagged in preparing for the new code set, which means that practices can't conduct their own tests or implement workflow changes to ensure their new systems work.
As the Oct. 1 implementation date nears, physicians' professional associations have become more strident in voicing their concerns. Last week, the Medical Group Management Association issued a survey of more than 570 practices representing more than 21,000 physicians and found that less than 10% of them had made significant progress when ranking their overall readiness for Oct. 1, up from 4.7% in June, 2013.
MGMA Senior Policy Advisor Robert Tennant says providers, payers, the government, and other players in the ICD-10 movement are not working in a cohesive and coordinated fashion.
"ICD-10 is like a cascade. Things can't happen until other things happen," Tennant says. "What we are finding through research and discussions with our members and industry [is that] the pieces aren't coming together as quickly as the government had expected them to. That includes software vendors, clearinghouses, [and] health plans. Nobody seems to be out front and leading the pack, and that includes the government."
First the bad news: Fewer doctors and the retail sector's knack for delivering price transparency and convenience are collectively putting physicians on notice. Now the good news: There's plenty of work for everyone.
Someone needs to respectfully inform physicians that, at least on the primary care front, they've already lost the scope-of-practice battle they've been waging from coast to coast against nurse practitioners, physician assistants, and other nurse clinicians with advanced degrees.
As in so many battles, it comes down to numbers.
1. A Dearth of Doctors
For starters, there aren't enough physicians around to provide access to care, especially as the Patient Protection and Affordable Care Act extends health insurance coverage to millions of people. The American Medical Association reports that the median age for all physicians in the United States is about 51 years, and so the physician shortage is expected to worsen as more physicians retire in the coming decade.
2. Price Sensitivity Ratcheting Up
Second, the rise of high-deductible health plans means that patients will become much more price sensitive and start acting more like consumers. Primary care practices led by physician assistants and nurse practitioners most likely can be run with the same efficiencies as physician-led practices and probably with reduced labor costs.
3. Retail Understands Consumers
Third, retail businesses understand the potential for creating vibrant walk-in clinics and other on-site provider services that will mesh with the demands of savvy healthcare consumers for price transparency and convenience. When CVS Caremark announced last week that it would no longer sell tobacco products, the retail chain wasn't just looking for good PR.
CEO Larry Merlo made that apparent when he said in a prepared statement: "Put simply, the sale of tobacco products is inconsistent with our purpose. As the delivery of healthcare evolves with an emphasis on better health outcomes, reducing chronic disease, and controlling costs, CVS Caremark is playing an expanded role in providing care through our pharmacists and nurse practitioners."
CVS and other retail giants such as Rite Aid, Walgreens, Walmart, and regional supermarket chains across the country have for years been experimenting with various on-site outpatient services. The move by CVS suggests that the trend will intensify. The people who run these businesses are very smart. When it comes to succeeding in highly competitive markets with tight margins, retailers are light years ahead of just about everyone in traditional healthcare.
Much more so than traditional medicine, retailers understand what customers can afford. People making $25,000 a year with a $4,000 healthcare deductible are essentially uninsured except for catastrophic coverage. They are going to be paying for most, if not all, of their healthcare services. Retailers have figured this out and they'll be cost competitive on the primary care services most in demand. In traditional provider settings many clinicians often don't know the price of the drugs or procedures they're recommending.
4. Retail Knows How to Build Loyalty
Fourth, retailers understand labor costs. They see the value in hiring two physician assistants for the price of one primary care doctor, especially for clinics with extended operating hours. I am speculating here, but I would imagine that retailers can run outpatient facilities at a much lower cost than can traditional providers.
In addition to keeping the doors open longer, retailers can rely on steady walk-in traffic and more convenient locations. It's conceivable that they'd advertise for flu shots, cholesterol screenings, or other primary care service loss leaders to get customers in the door.
And it's all about getting customers in the door and developing brand loyalty, another retail strong suit. As they expand clinical services, retailers will become even more sophisticated and will continually assess and experiment to determine what customers want.
The patient with diabetes, for example, may be directed toward an aisle carrying skincare and products for feet. An overweight or obese customer at a supermarket-based walk-in clinic might be directed towards the fresh vegetable aisle. Patient satisfaction is a relatively new idea in traditional medicine. In retail, it's always been about customer satisfaction.
What are physicians to do about all of this? First, they should acknowledge that they probably cannot go toe-to-toe with retail chains that can stay open longer, and have cheaper labor costs, more convenient locations, and see more foot traffic.
Retail Has Limits
Rather than attempting to delay the inevitable, or attempting to compete at a retail level with businesses holding decades of expertise, physicians should instead play to their own strengths. Retail clinics are convenient and cheap, but they have their limits.
In this new era of outcomes management and value-based reimbursements primary care physicians are perfectly suited to practice at the top of their licenses to treat more complex medical issues, to oversee population health measures, and to devise care plans for patients with multiple chronic conditions.
The irony here is that for all of the kvetching we have heard in some quarters about the shift away from fee-for-service and toward value-based payments, that very reimbursement scheme may prove to be the salvation of many traditional practices. Physicians do not want to find themselves competing against retail giants for who can provide the cheapest services.
The good news is that regardless of the care setting, there is plenty of work for everyone. The venue may evolve but patient demand is not going away.
