The evidence supporting differences in health outcomes between high-income and low-income populations is "indisputable," says Steven H. Lipstein, president and CEO of BJC Healthcare. Using non-risk adjusted outcomes to calculate performance measures disproportionately punishes providers who care for disadvantaged populations, he says.

A National Quality Forum panel wants the federal government to take into account socio-demographic factors for patient population health outcomes when risk adjusting pay-for-performance performance measures.

Steven H. Lipstein, president and CEO of St. Louis-based BJC Healthcare, was a member of the NQF panel that issued the report in October. Lipstein says numerous studies have shown that patients from less-affluent communities have poorer health outcomes, even though the care they receive in the hospital is the same as people from wealthier communities. As a result, he says, hospitals that serve predominantly poorer communities will be unfairly penalized.

Lipstein spoke with HealthLeaders Media about the panel's report. The following is an edited transcript.

HLM: Why does socio-economic status affect health outcomes?

Lipstein: In St Louis, mainly [in] the neighborhoods north of the city, you go into communities that are characterized by low household income, high poverty rates, high housing unit vacancy rates, high unemployment rates, and a high percentage of the population that didn't complete high school.

When you look at those five indicators you are looking at a community that is lacking social and economic infrastructure. When you live in a community without grocery stores, drugs stores, without transportation, with high crime rates, the health outcomes in that neighborhood are much worse than you would experience in neighborhoods that are characterized by a more-affluent population.

The evidence supporting the difference in health outcomes is indisputable. What is challenging right now is that the healthcare policy makers, specifically CMS (the Centers for Medicare & Medicaid Services), believe that health systems, doctors, hospitals, nurses, and other healthcare professionals, can overcome those disparities and produce the same outcomes at the same cost as compared with more affluent communities.

That is just not true. There is no evidence to support that finding.

HLM: CMS raises concerns that adjusting for socio-demographics will create tiered care standards that will adversely affect the poor. Is that a legitimate concern?

Lipstein: What people are concerned about is that if you risk-adjust for socio-demographic status, you will somehow cover up poor quality provided to patients of lower socio-economic status.

Nobody is advocating for covering up anything. In fact, after we do the risk adjustments, you will see in the recommendations that were proposed by the expert panels that the National Quality Forum convened, the performance measures would include specifications for stratification of the clinically adjusted version of the measure based on the socio-economic factors used in the risk adjustment.

That means you would actually display the results of all hospitals' performances according to different socio-demographic variables. You would see if there were better outcomes for poorer patients than for more-affluent patients. All of that would be transparent and visible so there would be no obscuring examples of poor quality.

Socio-demographic risk adjustment, if you're going to use those measures solely for quality assessment and improvement, then it is important to highlight differences among socio-demographic groups. But when you are using these measures as part of a pay-for-performance system, as CMS is doing, what you end up doing is punishing disproportionately the providers who care for disadvantaged populations.

You punish them in one of two ways: either their outcomes are not as good as hospitals that serve patients from more-affluent communities, or if their outcomes are the same and it just costs more to produce the same outcomes for a vulnerable patient as it does for an affluent patient, then CMS calls the provider who produced that same outcome a low-value provider because the quality is the same, but the cost was higher and CMS equates that to lower value.

HLM: Doesn't CMS take socioeconomic status into consideration when it designates critical access, low-volume and safety net hospitals?

Lipstein: They are not. The federal government looks at safety net hospitals as if they are all the same, and they are not. There are safety net hospitals in some jurisdictions that are able and willing to tax themselves to support safety net care.

If you were to look at the tax base that supports Denver Health, or Cook County Medical Center or Grady Memorial Hospital, or Parkland in Dallas, and then look at the taxing jurisdictions that support rural communities or the boot heel of Missouri, or East Baltimore, or North Philadelphia, you would find the local jurisdictions are very different.

There are 51 different state Medicaid programs. That means eligibility for Medicaid is variable across the United States. When CMS says we are going to look at dual-eligibility as an indicator of a person's poverty or life circumstances, think about that.

A childless adult in Missouri is not eligible for Medicaid, but in 27 other states that childless adult is eligible up to 138% of federal poverty, or an income of $32,000 a year for a family of four. So, the individual life circumstances of people who are ineligible for Medicaid are highly variable across the United States.

HLM: What do you want?

Lipstein: We want CMS and all payers, in their pay-for-performance programs, to risk-adjust health outcomes, to risk-adjust costs to produce those outcomes, and to risk-adjust premiums payments if we got to that for the socio-demographic characteristics of the community in which the patient lives; not the community where the hospital or the patient resides, but the community where the patient lives.

The risk-adjustment methodology that we use at BJC Healthcare looks at the socio-demographic characteristics of individual census tracts. Ascribing them to each individual patient, we can then calculate a discharge-weighted poverty rate for each hospital in our state. That means it's the poverty rate not of the hospital or where it resides, but the poverty rate of where the patients live who use that hospital.

In our report, hospitals with the highest discharge-weighted poverty rates by census tracts are the same hospitals with the highest all-cause readmission rates in our system. In order not to penalize doctors and hospitals under pay-for-performance of value-based purchasing or risk-based contracting, you need to adjust their outcomes, costs, and premiums to account for the degree of difficulty associated with serving vulnerable populations. By doing that we will encourage hospitals, doctors, nurses, healthcare professionals to invest future capital in serving disadvantaged patients.

Right now what I am concerned about is that CMS is presiding over a pay-for-performance environment in which they are rewarding the provider community for investing its future capital in serving more-affluent populations. The market already provides the rewards for serving more-affluent populations. CMS doesn't have to help them do that.

Right now, the fact that there are health systems in Detroit, Michigan paying the maximum penalty for readmission rates, while hospitals in Scottsdale, Arizona pay no penalty for readmission rates, is a re-direction of federal resources from a poorer community to a more affluent community, and I don't understand why our government thinks that is good public policy

HLM: Is a price tag attached to this risk adjustment?

Lipstein: It would be neutral. The penalties could still be assessed but they would begin to fall on different providers. The federal government could save the same amount of money but it would end up assessing penalties on hospitals in more-affluent communities at a higher rate than it does today.

HLM: Does your proposal create the tiered standards of care that CMS is concerned about?

Lipstein: If CMS were correct, then we may have hospitals in our health system or hospitals nationwide that are not paying penalties for readmission rates because they've served patients who are discharged into home environments or communities that can support their recovery and convalesce more easily than they could in more-disadvantaged communities.

Why would CMS disproportionately favor those hospitals even though they are doing no better at managing the experience of care when the patients are in the hospital or the transition of care to the patient in the home environment?

The key point is we are trying to be fair to providers who serve vulnerable patients and we are trying to encourage them to continue to provide services to vulnerable patients or even expand those services in the future. But if they are disproportionately affected by the federal government's pay-for-performance and value-based purchasing program, that will be a contributing factor to their financial challenges.

If you lose your ability to meet your financial challenges by shifting costs to more-affluent patient populations, you go out of business.

The number of hospitals that have failed in the St Louis-metro area—and we presented almost 40 years of data—are all hospitals that lost the ability to address their financial challenges and they disproportionately served vulnerable communities.

The outcome of a case before the Supreme Court has the potential to extend far beyond teeth whitening and mall kiosks to state regulatory boards governing the actions of physicians, says a healthcare antitrust lawyer observing the case.

It's always risky to predict how the U.S. Supreme Court will rule on a case simply by interpreting a transcript of the oral arguments.

So, let's get started.

On Oct. 14, the high court heard from both sides in North Carolina Board of Dental Examiners v. Federal Trade Commission. The justices are being asked to decide if a state regulatory board is exempt from federal antitrust laws under the state action doctrine if its members are "market participants" elected by other market participants.

The eight-member North Carolina board, which includes six dentists elected by other dentists, had been the subject of a complaint by the FTC in 2010 for violations of the FTC Act after the board banned non-dentists operating in mall kiosks from performing discount teeth-whitening procedures.

Jay L. Levine, a Washington, D.C.-based healthcare antitrust lawyer and disinterested observer of the case, says the high court's ruling is expected early next year, and the implications of the ruling extend far beyond teeth whitening and mall kiosks.

"If the FTC wins and this board is considered a private actor and you'll always need state supervision for such boards, then obviously a lot of regulatory boards that are made up of practitioners of that industry, doctors, lawyers, etc., will need to have active supervision," he says.

"There will need to be some state entity that regulates their activity and that is not made up of people from the industry itself. Does that necessarily mean that a non-neurologist is going to tell a neurologist how to perform a surgery? I highly doubt that. But it may well mean that a non-neurologist, a bureaucrat, or an agency is going to be ruling on a recommendation, let's say, of how many years you need to be in practice to be state certified."

"I don't think it is going to be so terrible because I presume they will take the input of the people in the industry, but that is the logical conclusion if the FTC wins."

If the North Carolina Dental Board prevails, Levine says we can expect that many states will chose to maintain the status quo. "As long as there is a clearly articulated state policy to displace competition, they will be able to do pretty much whatever they want, whether or not that is what the state intended or not, until the state legislature either changes that policy to displace competition or the governor disbands the board."

Dental Board v. FTC
In a lively hour-long discussion, the justices grilled dental board attorney Hashim M. Moopan and FTC attorney Malcolm L. Stewart, deputy solicitor general with the U.S. Department of Justice.

Justice Stephen Breyer told Moopan that "the object of the antitrust laws is to prevent private individuals who compete with each other in business from getting together and making agreements. That kind of interest seems present here."

Moopan had said that the "fundamental key" to the dental board's argument was "not just that they're designated as state officials, but they are charged with a state law duty to enforce state law. They are not acting pursuant to their unfettered private discretion to choose whatever choices maximize their personal profit."

"The fundamental question here is whether federal courts need to second guess these state administrative questions."

Justice Ruth Bader Ginsburg noted that antitrust exemptions fall under federal law, not state law. "The federal law sets the dimensions of what fits within the state action. It's not up to the state to create the state action exemption. It's federal law and what its metes and bounds are are also federal law.

Moopan agreed, but noted that the Supreme Court's previous rulings on the Sherman Antitrust Act "do not apply to the acts of states or their officials when implementing laws directed by the legislature. And absent extraordinary circumstances, I would think that Congress did not intend for federal courts to second-guess whether a public entity is really private."

Breyer asked Stewart if a ruling in favor of the FTC would create a scenario where bureaucrats could overrule brain surgeons on professional credentialing.  
"What the state says is, 'We would like this group of brain surgeons to decide who can practice brain surgery in this state. I don't want a group or bureaucrats deciding that," Breyer said.

Stewart acknowledged that "what is true of the Dental Board of North Carolina could also be true of the neurology or the more general medical board in another state."

That prompted Justice Antonin Scalia to interject: "Really? Really? You are going to have a review board composed of non-neurologists deciding de novo whether a particular person should be admitted or a particular rule should be adopted? I don't want that. I want a neurologist to decide it."

Misgivings on Display
Levine says the justices displayed misgivings with both sides of the argument.
"They have no desire to give carte blanche to state boards that are comprised of private actors and have them run amok without any active state supervision to fix prices," he says.

"At the same time, Justice Scalia specifically said that he does not want a non-neurologist deciding who can and cannot practice neurology. That analogy got picked up by a number of justices."

"My suspicion is they may split the baby here," Levine says. "It will be interesting to see how they come down as to what determines a private actor or not. They may very well try to articulate a line that whether you're a private actor will depend upon the type of activity you are asked to rule upon."

Levine says the justices may try to articulate a fine point "where you're a private actor if the board's activities essentially rule on what would otherwise be run-of-the-mill competitive activity."

"But if what the board is inherently supervising is something that is not the hallmark of competitive activity, but is really something that is relegated to the states in terms of safety and the like, then I can see the justices articulating a rule that they are not going to second-guess the state legislature's delegation of power to that board."

A ruling on the case is not expected until early 2015.

Reacting to the departure of two more ONC leaders, the head of the AMA calls for more flexibility with meaningful use certification requirements "so that vendors have more freedom to innovate and tailor their products to meet physicians' needs."

UPDATE: On Tuesday the Department of Health and Human Services clarified that Karen DeSalvo, MD, was not leaving the Office of the National Coordinator, but was stepping aside temporarily to help coordinate the federal government’s Ebola response. In response to the clarification, AMA President-elect Steven J. Stack, MD issued this statement: "The American Medical Association is pleased to learn that Karen DeSalvo will remain involved in the Office of the National Coordinator for Health Information Technology. We look forward to continuing to work with her to fix the Meaningful Use program and achieve an interoperable technology infrastructure."

The second leadership shuffle in less than one year at the Office of the National Coordinator for Health Information Technology could "jeopardize the growing momentum around [Meaningful Use] interoperability," the American Medical Association said.

AMA President Robert M. Wah, MD, in remarks released by his office Monday, said the announced departures last week of ONC Director Karen DeSalvo, MD, and Deputy Director Jacob Reider, MD, "leaves a significant leadership gap" at the office charged with overseeing and coordinating the nation's adaptation of interoperable electronic health records.

DeSalvo was named national coordinator for HIT in December 2013, replacing Farzad Mostashari, MD. Last week, DeSalvo stepped down temporarily from the job to become the Acting Assistant Secretary for Health at the U.S. Department of Health and Human Services, where she will concentrate primarily on the Ebola response.

Providers Ask HHS to Address EHR Interoperability Barriers

Reider said he was leaving ONC to practice medicine closer to his family in Albany, NY. Lisa A. Lewis has been named acting national coordinator.

Wah renewed the AMA's call for ONC to be more flexible with MU certification requirements "so that vendors have more freedom to innovate and tailor their products to meet physicians' needs."

"Interoperability and data portability are critical components for transforming clinical practice and improving health outcomes," Wah said. "Unfortunately, physicians have been facing challenges with several poor performing EHRs that are not interoperable. Without widespread interoperability, the value proposition of EHRs has not been realized and the adoption of new innovative models of care has been hindered."

Earlier this month AMA released a blueprint to improve MU Stages 1 and 2 and provide suggestions for Stage 3, as well as a framework outlining eight priorities for more usable EHRs.

Interoperability Needs More Than Fired-Up Buyers

The AMA, the American Academy of Family Physicians, and several other professional organizations and health systems earlier this month asked HHS Secretary Sylvia M. Burwell to address systemic snags and glitches around the interoperability of electronic health records that they say are frustrating providers and doing little if anything to improve patient care or reduce costs.

"Currently, health information stored in most EHRs/EMRs and other HIT systems and devices do not facilitate data exchange but 'lock-in' important patient data and other information that is needed to improve care," the letter says.

Citing data from the Office of the National Coordinator for HIT, the letter notes that only 14% of physicians can electronically transmit health information outside of their organizations. The main barriers to data exchange continue to be "strict MU requirements and deadlines that do not provide sufficient time to focus on achieving interoperability."

The eight co-signers recommend a handful of changes that they say could improve the meaningful use process, including:

• Streamline and focus meaningful use certification requirements on interoperability, quality measure reporting, and privacy/security.
• Remove certification mandates and instead allow for a flexible and scalable standard based on open system architectural features such as application program interfaces. This will allow data to move more freely across the healthcare system, reducing data lock-in and promoting more usable systems.
• Foster stakeholder collaboration to promote new HIT that is focused on clinical care needs.
• Remove restrictive MU policies that stifle HIT innovation.
• Allow vendors and providers adequate time to develop, implement, and use newly deployed technology and systems before continuing on with subsequent stages of the MU program. Testing and achievement of specific performance benchmarks should occur before providers are held accountable for any new MU requirements.

The ONC's push for MU has been riddled with delays and criticism from providers and vendors.

When hospitals acquire physician practices—ostensibly to create accountable care organizations that better coordinate care and eliminate waste and redundancies—the cost of care goes up, not down, researchers find. But that's not the last word.

One of the most ferocious debates in the healthcare sector is whether or not provider consolidation leads to higher or lower costs.

After years of speaking with very smart people on both sides of the issue, I can unequivocally say: Maybe.

Consider the study published this week in the Journal of the American Medical Association. Researchers at the University of California, Berkeley, found that when hospitals acquire physician practices—ostensibly to create accountable care organizations that better coordinate care and eliminate wasted and redundancies – the cost of care goes up, not down.

"This is about the total cost of care. This is about consolidation," says study lead author James Robinson, professor and head of health policy and management at UC Berkeley's School of Public Health.

"The ideal of the ACO movement is that consolidation is a way to get to coordination and coordination is a way to get to cost moderation. What we find here is that consolidation is not necessary nor sufficient to get to that cost moderation endpoint, and it can go in the opposite direction."

Robinson's team analyzed 2009–2012 data on 158 major medical groups and 4.5 million patients in California. Groups were divided into three categories: owned by physicians, owned by a local hospital or hospital system, or owned by a large hospital system in multiple markets.

Cost Measures
The cost measures included physician visits, inpatient hospital admissions, outpatient surgery and diagnostic procedures, drugs, and all other forms of medical care, according to UC Berkeley.

Controlling for the mix of severely ill patients and cost geography, per-patient expenditures were 19.8% higher for physician groups in multi-hospital systems compared with physician-owned organizations. At groups owned by local hospitals, per-patient costs ran 10.3% higher compared with physician-owned groups.

"It's not that hospitals are getting together and raising their prices," Robinson says. "This is hospitals acquiring medical groups and then total costs go up, physician costs, hospital costs, drug costs. That says they are not raising prices directly, but rather that hospitals are big organizations. They have a lot of overhead and layers of complexity. They have ambulatory services centers they want to keep full. They have imaging equipment they want to use. And when they own a physician group they probably—not in writing but implicitly—say 'you shall use our hospital and our imaging equipment,' and that is expensive."

Robinson also sees the consolidation as a variant of the rich-get-richer syndrome.

"It is particularly expensive if the entity that purchased the medical group happens to be the consolidated high-priced facilities, and the reason there is good suspicion to think they are is because those are the people with the balance sheets to buy medical groups," he says.

"That is the dilemma in the hospital consolidation. The expensive hospital buys the cheap hospital and turns it into an expensive hospital. The most expensive hospitals are buying the medical groups and they channel those admissions to that hospital."

AHIP Weighs In
There is no greater champion of the consolidation-means-higher-costs argument than America's Health Insurance Plans, and they applauded Robinson's study.

"Once again, the rhetoric of provider and hospital consolidation adding greater efficiency to the health system does not match the reality," AHIP spokeswoman Clare Krusing said in an email exchange. "For patients in highly consolidated markets, they are facing higher costs without any indication of an improvement in the quality of care."

The American Hospital Association takes a different view. They believe that many studies, including Robinson's, which show higher costs related to consolidation are based on flawed, skewed, or obsolete data.

"The researchers analyzed data from 2009–12. Even in California the market has moved so far and so fast that this study is a little out of date and a little out of touch," says Melinda Hatton, AHA general counsel.

Hatton notes, for example, the launching last month of Anthem Blue Cross Vivity, a conglomeration of seven health systems in the Los Angeles area that are forming an integrated care network to compete with Kaiser Permanente.

"Vivity show you that hospitals, whether they are in California or other markets, recognize that particularly for outpatient services they have to be cost competitive or they are not going to be sustainable," Hatton says.

Why Acquisitions Happen
There are a number of reasons why hospitals acquire medical practices beyond improving leverage with payers, Hatton says.

"You cannot make cost and quality goals set both by the government and the private sector unless you are able to work with physicians in a way that affiliations short of mergers and acquisitions don't allow you to work with them that way," she says.

"Part of it is the regulatory barriers. Whether you are talking about Stark or anti-kickback or civil monetary penalties, our whole regulatory structure is based on an outdated 20th-century model that no one believes is the way to improve cost and quality in the healthcare system."

"Unless you are tightly aligned with your physicians, you are going to sustain increasingly large readmissions penalties, you are going to see penalties under hospital acquired conditions increase. More importantly, consumers at every level are looking for those kinds of entities in the healthcare field that can actually provide a continuum of care and not just episodic care that leaves the consumers having to try to navigate a healthcare system by themselves."

Retail Medicine
In an era of high-deductible health plans, with consumers fronting more of the cost, Hatton says, hospital outpatient services have to be cost competitive with upstart retailers such as Walgreens and CVS Health (formerly CVS Caremark). However, she concedes that hospitals likely will never be able to match prices with retail medicine.

"There are requirements that hospitals have for their physician practices that outpatient ambulatory centers don't have," she says. "But you have to think about the quality implications and the patient safety implications. The safer the environment, the more it's going to cost, but it has to be a competitive price or consumers are going to take their chances with a place that doesn't have to meet those requirements. Everybody recognizes that."

I have no reason to doubt that Robinson's study is an accurate reflection of his findings. It also passes the common sense test, and Hatton's concessions on the higher costs of hospital outpatient services, however justified those costs may be, validate Robinson's findings.

However, Hatton is also correct. A lot has changed in healthcare delivery in less than two years. Since the passage of the Patient Protection and Affordable Care Act, the big driver has been the dramatic rise of the high-deductible health plans. Their growth forces patients to become smarter healthcare consumers.

In a new era of price transparency, hospitals can pitch the quality argument when explaining to consumers why their services cost more. But as the big box retailers have shown us, you have to be in the ballpark.