Inefficiency in hospital and health systems used to be rewarded—not willfully, but because there wasn't a good business reason to change things. Now there are financial incentives for care coordination, which takes teamwork—and leadership.
Last week I moderated a HealthLeaders Roundtable about the new skills top executives need to develop or polish in a new world of healthcare delivery, where little seems certain and much seems at risk.
The discussion centered on the contention that many of the attributes by which top executives are evaluated are changing rapidly—as quickly as incentives and business realities are changing.
The Roundtable will be published in the September issue of HealthLeaders magazine. Unfortunately, a roundtable is a 3 ½-hour discussion, so only the highlights make it into the actual publication, leaving a lot of valuable insights on the "cutting room floor." And September is a long way off, so I thought I'd share here some of what we talked about that won't make it into the final version.
For starters, I was surprised that what our panelists had to say about how expectations are changing had as much to do with changing culture and mindset as it had to do with skills.
The essence of the discussion about culture and mindset can be boiled down to this: Everyone, from the CEO on down, must learn to work as a team. Well of course, I thought. Teamwork is the best way to accomplish a difficult goal. That's common sense.
But for many years, teamwork has not only been anathema to the "physician as god" mindset, but it's been toxic for revenues in a roundabout sort of way.
The less simple healthcare was, the less profitable. That's pretty blunt, but it's also pretty true. That doesn't mean teamwork was discouraged, but that other than some isolated instances, there was little to encourage it where the rubber meets the road—that is, financially.
Leaders knew this intuitively, even if they couldn't express why it was so difficult to engender teamwork among the different parts of the hospital.
I suppose I wasn't shocked to hear that the ability to work in and lead teams is very important for top executives in healthcare now. But I was surprised to hear concrete examples of how it can be accomplished.
I've covered healthcare for nearly 14 years, so I've heard for a long time about the industry's "silos" and how difficult it has been historically to break them down, even for a CEO. Toppling silos—areas in the hospital that don't realize or don't care how their actions affect other parts of the healthcare delivery system, has seemed the impossible dream.
To grossly oversimplify things, silos and their spawn, uncoordinated care, have led us to the navigational mess the healthcare system presents now to patients and their caregivers. And silos don't help with the costs either.
And there's the rub. Inefficiency has been rewarded—often not willfully, but because there just wasn't a good business reason to really push it.
Not anymore.
As one CEO panelist said at the Roundtable, "it's no longer good enough to be on time and to incur no overtime. It's about care pathways and it's about reducing utilization."
So now they get it.
Put simply, incentives work. And thanks to incentives, hospitals and health systems are paying much more than lip service to care coordination and developing a culture in which fewer resources are wasted, patient satisfaction is actually important, and teamwork across departments is rewarded. (You can argue either way whether incentives that engender care coordination and patient satisfaction are carrots or sticks, or whether they're optimal.)
It's been a long time coming.
Care coordination takes teamwork, which is why at least this group of leaders is serious about seeking individuals who, as one colorfully put it, "are comfortable playing in others' sandboxes and comfortable with others playing in theirs."
The industry is already turbulent as the Patient Protection and Affordable Care Act begins to take effect, and as payers, providers, and even hospitals try to get a handle on healthcare costs. But one person's cost is another's margin, and healthcare leaders must dance on an ever narrowing tightrope as they try to work smarter.
High levels of utilization, which used to pay hospitals and health systems' bills and salaries (and in many cases, still do),are no longer acceptable. And accountability for results, not just procedures, is adding a big layer of complexity to the art of running a hospital or health system.
But thanks to increased rewards for teamwork, at least you don't have to do it alone.
There are other interesting discussions with hospital executives in the Roundtables section. Access is free.
Despite recent news headlines about merger failures, many M&A deals are successful. Recently acquired hospitals improve their financial and operational performance more after a deal versus their non-acquired peers, one study shows.
Good news comes from the merger and acquisition front in healthcare this week. Deloitte has published a special report that shows hospital and health system mergers(PDF) in 2007 and 2008 have been increasingly successful—at least if the metric is significantly improved hospital profit margins. I encourage you to devote some time to it, because if other statistics are to be believed, some 20% of you will be directly involved in a merger or acquisition over the next decade.
Despite several high-profile merger flameouts of late—see here, here and, most recently, here—it's clear that healthcare has to consolidate. Smaller hospitals and systems are simply being priced out of the market, and not only from a competitive standpoint. Smaller hospitals and health systems are looking for partners because compliance with a raft of new incentive-based reimbursements, not to mention coding and other technology requirements, is much more difficult for them than it is for the big guys.
Think of what happened when Wal-Mart and a few others took over retail from smaller organizations over the past few decades. There's not a direct correlation, but the similarities are there. It's also clear from the Deloitte study that despite frequent news headlines about merger failures, many are doing it well.
Though Deloitte is far from the last word on the prospects of hospital mergers, its findings are that the financial and operational performance for recently acquired hospitals improved more post-deal than their non-acquired peers. This discovery flies in the face of evidence over a longer time period than the Deloitte study, that in using the same metric, less than half of mergers overall are successful. Why I even wrote about that very topic here in this space several months ago, based on another study that looked at hospital and health system mergers and acquisitions.
So two well-respected organizations, with reams of research to back them up have come to two seemingly opposite conclusions. What's the truth?
Likely, both are true, from a certain point of view. The Booz study (PDF) I cited in October looked over a much longer time period than Deloitte's more recent study. While Deloitte examined only mergers that occurred in 2007 and 2008, with information on the success of the mergers until 2010, the Booz study covered 1998–2008.
Assuming better performance in later years, as Deloitte's report suggests, shows that clearly, something has changed in that 10-year time period, skewing Booz's statistics negatively.
What is it? Unfortunately, the answer is not black and white. My best educated guess is that mergers lately seem more strategic—and more necessary, even if they fall through before completion. Systems are taking more chances in order to better prepare for an uncertain future.
The Deloitte study found that expansion of volumes is critical to value creation. Wait, you say, volumes have always been critically important to financial success. True, but volumes haven't been limited in the recent past in the way that CMS and increasingly, commercial payers, are limiting them.
Increasingly, there's good volume and bad volume. For lack of a better term at deadline, let's call this metric "volume quality." That is, 30-day readmissions are "bad volume," because no matter the payer, those readmissions are being punished financially in ways they haven't before.
And those punishments are real. Hospitals that readmit within 30 days for the same condition not only lose reimbursement for that admission, but they incur sometimes very high costs for treating those patients a second time.
Organizations with high "volume quality" seek others who have the same commitment and means to achieve it, or they seek bargains from those who are bad at volume quality, but just need the resources of a national chain that has figured out how to improve it without massive investment. Call it transferable institutional sophistication, whether it comes from scale or a proven track record, or both.
The "volume quality" metric is just one example of the increasingly complicated ways hospitals must compete with each other and with quality standards to achieve good reimbursement.
The Deloitte study also points out the increasing interest in acquisitions of hospitals not only by for-profit chains, but also by venture capital funds and other nontraditional acquirers, whose allegiance to shareholders outweighs any other influence.
Value creation, therefore, is now a central reason for mergers to take place. In healthcare it hasn't always been so high on the list of measured "outcomes" from a merger, if you will. Deloitte notes a significant difference in financial performance when the acquisition is by a national chain rather than a local or regional one.
Sure, increased merger success of late has something to do with the increased rigor, scale, and, yes, on accountability being forced on what has been largely a nonprofit industry for the past 100 years or so.
Whether they're designated for tax purposes as nonprofits or not, profits matter for every hospital—a lot—and hospitals are getting a lot better at extracting it. Especially those, it seems, who serve shareholders first. Whether that's good or bad for healthcare is another discussion.
Helping to run a hospital or health system from a board seat has gotten complex over the years. The instability of healthcare brought upon by its unaffordability makes the job of hospital governance both difficult—and difficult to fill.
The cover story for this month's issue of HealthLeaders magazine is a bit of a departure for me. Though I regularly chat with hospital CEOs about business strategy, hospital operations, challenges and healthcare management trends that they're facing, I rarely have occasion to talk with board members—the CEOs' bosses.
It's they who have the often thankless job of approving and advising on strategy, who make difficult capital decisions, and who manage and facilitate communication and understanding between powerful interest groups—such as physicians and nurses.
Hopefully you have had chance to read the story. If not, I encourage you to, and not just because I wrote it. I encourage you to read it because helping to run a hospital or health system from a board seat has gotten much more complex, and finding people with the expertise and time to devote to board work is getting more difficult.
Years ago, the most important function of a hospital board was deciding what to serve at the quarterly luncheon. I'm kidding, but there's a reason that was a running joke for so long. Boards didn't have to do much. Often they were political appointees. Little time was spent on oversight. Their second most important task was to rubber stamp what the administration wanted to do.
Board members are still leaders in the community, as they have always been. But now, given the instability of healthcare brought upon by its unaffordability, the job is much more difficult and much more time consuming.
For evidence of how high-stress it is, consider this: One of the board members I interviewed for the magazine story ended up only weeks later in the unenviable position of having to terminate his CEO after the full board voted to remove him.
Much of the uproar that decided Randy Kelley's fate was not something you usually see take down a CEO. The former Caromont Health CEO didn't lose his job because of a physician revolt. He didn't botch a merger. He didn't lose money hand-over-fist. He didn't have an inappropriate relationship with a subordinate. All of these mistakes have cost hospital CEOs their jobs in recent times.
(If you're like me, you had a list of names running through your head as you read that list of CEO missteps.)
No, the ousting resulted from a marketing blunder.
Incidentally, the vote to remove him went down as the article I wrote about board governance went to press. It suffices to say, neither Kelley nor Spurgeon Mackie, the board chairman I quoted, knew that something as simple as a marketing campaign would lead to the change.
Indeed, the marketing campaign seemed pretty innocuous to me, if a little cutting edge—at least for healthcare. The slogan Caromont leaders chose, "Cheat Death," debuted to less than stellar reviews among the public, and board members, apparently.
Even though, let's be honest here, that is what hospitals are in the business of doing. Not only that, the slogan was meant to emphasize the patient's role in maintaining health—which is one of the most unsolved big-picture problems affecting healthcare costs today—patient responsibility. The message to Caromont's future patients was to eat better and exercise more. What's wrong with that?
To be fair, board members who spoke about the dismissal say there were other issues as well.
Dismissing their CEO was their prerogative. But finding innovative CEOs to run small hospital systems boxed in by huge regional competitors is not easy. The board says it will conduct a national search for its next leader. Best of luck to them. That will be a tough job too.
But don't just listen to me. Listen to board members themselves. I talked to three of them at length, all at very different hospitals and health systems in three corners of the country.
One of the key themes of the story was the importance of being a "learning board." In today's environment of change, perhaps nothing is more important.
Hospitals in states that opt not to expand Medicaid are at a severe disadvantage to their counterparts in other states, not only because they will miss out on additional Medicaid-based reimbursement, but also because they will face the same cuts in disproportionate share funding as everyone else.
This article appears in the May issue of HealthLeaders magazine.
Medicaid is widely regarded as a poor payer related to costs, but hospitals, especially the nation's safety-nets, are eager to get more of their state's residents on the plan nevertheless. That's because Medicaid's reimbursement rate, which varies by state, is much better than nothing at all, which is what many hospitals claim they get, in reimbursement terms, from treating the uninsured.
But getting more of their patient mix from Medicaid patients rather than the uninsured will be difficult for those in states that have so far refused to expand their Medicaid rolls. Refusing expansion, of course, is their right, according to the Supreme Court's 2012 decision on the constitutionality of the Patient Protection and Affordable Care Act, in which the Medicaid expansion is enfolded.
But doing so might not only transfer funding to states that do expand, but it also might leave safety-net hospitals with the same costs to treat the uninsured, while other sources of funding, such as disproportionate share dollars, are reduced over time.
As HealthLeaders went to press, 14 states still have refused to participate in the Medicaid expansion, which would take effect in 2014 and make adults with incomes up to 138% of the federal poverty level eligible to enroll.
The problem, say state governors who are resisting, is that although the federal government has agreed to pick up all of the tab for the first three years of expansion and 90% thereafter, there is no way to ensure that future Congresses will keep those promises, meaning states could be on the hook for more than they bargain for under current rules.
The problem for hospital leaders, however, is that if a state does not choose to expand, hospitals in those states will be forthwith at a severe disadvantage to their counterparts in other states not only because they will miss out on additional Medicaid-based reimbursement, but also because they will face the same cuts in disproportionate share funding that their counterparts in other states will see.
"The most vulnerable hospitals will be major safety-nets in urban areas that are currently treating patients who don't have health insurance and that are dependent on local funding and disproportionate share funding," says Bruce Siegel, MD, MPH, president and CEO of the National Association of Public Hospitals and Health Systems, a Washington, D.C.–based organization that lobbies on behalf of its members. "We'll see this funding drop, and will also see continued pressure on the local funding side because of the economy."
Those dollars lost will be significant, he adds. An NAPH study released late last year found that hospitals could face an increase in uncompensated care costs of $53.3 billion by 2019 if a substantial number of states do forego expansion, coupled with an estimated loss of $14.1 billion in disproportionate share funding.
For most safety-net hospitals, many of which already get by on local tax subsidies, such a drop in revenue could be devastating not only for them but for other hospitals in their states, which would presumably see increased bad debt and funding shortfalls where treating the uninsured is concerned.
Revenue issues apply statewide
Safety-net hospitals will initially bear the brunt of their states' decisions not to expand, says Siegel.
"If you're a hospital today that has mostly paying patients and very little charity care, you should be okay, at least in the short term," says Siegel, who previously served as president and CEO of Tampa General Healthcare and also of New York City Health and Hospitals Corporation.
"You're not counting on coverage expansion and you don't need disproportionate share and you're probably not getting much of it right now anyway. But if you're a safety-net hospital, you have potentially the worst of all possible worlds."
For John Haupert, CEO of Atlanta's 650-staffed-bed Grady Health System, that could mean an annual loss of tens of millions in reimbursement for an already fiscally challenged public hospital system.
By 2016, when disproportionate share funding scales back to 50% of its current levels, "we lose $45 million a year," he says.
But on a longer-term basis, other hospitals will also be negatively affected.
"All hospitals have skin in this game," says Siegel. "A lot of hospitals maintain their margin because of the safety-net taking the uninsured, and if that goes away, they will bear the brunt. That's not a secret to them, but still a threat."
The haves and have-nots
Though the states that have so far refused still can accept Medicaid expansion, safety-nets in states that refuse expansion are likely to be most at risk.
And though Grady's Haupert expects much to change in coming years surrounding the Medicaid expansion, he and his board are having to make long-term plans to deal with lots of potential challenges. And it's frustrating to them that hospitals are in a political fight they didn't ask for.
"Already we get a disproportionate unfunded mandate. That's our mission and we have some local tax support, but the bigger issue for us is that the way the law is written, you're going to give back 50% of your disproportionate share funding even if they don't expand," Haupert says.
"The diabolical thing is we have an uncertain insurance expansion and a certain cut in disproportionate share," echoes Siegel.
If nothing changes, that would mean huge disparities in how much reimbursement similar safety-net hospitals in other states would get versus hospitals in states like Georgia.
"Many say this is too good of a deal to pass up because if the feds don't deliver on paying for the expansion, you can unwind it," says Haupert. "Our reality, though, is that I don't see us expanding immediately."
For Haupert and his board, that means serious consideration of cuts in services, and with a $45 million annual hole to fill, and it's not idle talk to discuss eliminating money-losing services, like behavioral health, he says.
"We'll eliminate or reduce clinical services, period," Haupert says. "One example I gave to the governor [Republican Nathan Deal] personally is that Grady is the state's second-largest provider of mental health [care]. If this happens, can we continue to provide it? We could save $25 million to $30 million a year by not doing it, but what does that do to the state? In this case the law of unintended consequences is significant."
Other hospitals in less populated areas of the state, he predicts, will simply close.
"We have 15 hospitals that will close if the state does not expand its Medicaid program or we don't get the disproportionate share funding issue resolved, and I don't see too many governors who want that on their hands," he says.
Many of the states that are so far rejecting the Medicaid expansion are the same ones that are not planning on setting up insurance exchanges on their own. Though both pieces of the legislation have serious implications for hospital revenue, the delays that are expected to surround states that aren't setting up exchanges could have a knock-on effect on revenues for hospitals in those states.
Hard lobbying
Like Haupert, Siegel says hospital leaders need to take their issues straight to their governors and paint the picture. He says it can be effective to partner with businesses to push for the expansion.
"Not expanding is an act of fiscal insanity. This is a core economic issue," he says. "States that do not expand are literally taking their federal tax money and giving it to other states. It's hurting patients and small businesses in your state."
But some governors seem steadfast, at least for now. That's why, in parallel, NAPH and hospitals that will be affected by the disproportionate share funding drop are working on possible modifications to that piece of the law. But as Haupert says, hospitals are caught in the middle of two government entities engaging in high-stakes brinksmanship.
"Someone's going to have to blink," he says. "HHS is going to use the disproportionate share issue to the final minute to get the s and years, especially surrounding adjustment of the disproportionate share cuts.
"All of us should be working really hard to educate our governors and congresspeople about the reality of the DSH cuts," Siegel says. "That will take some time. Right now, the reductions are still a few years out—they don't start getting big until after 2016, but in an atmosphere of gridlock, it's hard to get action until a disaster is about to occur."
Of course, if modifications are made to disproportionate share funding to help alleviate the burden on hospitals in states that won't expand, some might see it as a reward for political intransigence.
"If they let the number of uninsured drive the calculation, they'll have to take disproportionate share money away from states like New York and California and give it to states like Texas," Siegel says, "which would be ironic. There are lots of carrots and sticks in play here."
Reprint HLR0513-5
This article appears in the May issue of HealthLeaders magazine.
If you are a high-cost outlier, don't panic. Even if you can't kill your chargemaster, you can mitigate its effect by identifying—and rectifying—what your hospital charges.
My column last week, "Kill Your Chargemaster," predictably generated a lot of reader response. With a provocative headline like that, I expected to get a lot of "you don't know what you're talking about," types of emails and comments. I can take that, and I fully recognize that I'm not an expert on the intricacies of healthcare finance and what got us into this mess.
But I was surprised.
Instead of nasty condemnation, I got thoughtful responses. Exhibit A is from Frank Poggio, a former hospital CFO who is now a consultant, about why hospital prices are such a Gordian Knot, and why killing your chargemaster (or at least making sensible changes to it) is so tough. Read what he says (edited for punctuation and grammar):
"Yes, hospital charges are nonsense, all over the map, and not based on logic. All true. But how'd that happen? As a former CFO, I can tell you it was all done via the Medicare Cost Report, the core basis of the Medicare payment system. For almost five decades the government has used the Cost Report, and a myriad of other convoluted reimbursement systems, to calculate payments to hospitals.
So over the decades, any good CFO would make sure that his charges maximized his governmental payments. And Medicare and Medicaid usually make up 60% of his total payments.
Some 30 years ago charges became a substitute for statistics and cost accounting to estimate how much the government was going to pay you. Ever hear of RCCAC? That's the Ratio of Costs to Charges as Applied to Costs, a key calculation in the Cost Report. One of the most insane ways of 'identifying' costs ever cooked up. And it's still used today!
Hospitals get paid based on DRGs, but still must do a Cost Report to justify the DRG amounts. I was around in 1983 when the feds came up with DRGs, they said back then the DRG system would replace the Cost Report... and here we are 30 years later—with both! If you want to know why charges are a mess, just look at the Cost Report, and ask who created that monster? Oh, the government, the same one that now complains about warped prices. What did they expect?"
Whether or not bureaucrats 30 or 50 years ago cooked up insane compensation guidelines is, of course, out of your control. If you want to get paid, you have to play that game. But the rules are slowly changing, and you have to adapt.
Because of this convoluted system, you can't kill your chargemaster today, but over time, you may be able to minimize its importance and its outrageousness. We've at least dispensed with the myth that the chargemaster doesn't matter.
In fact, it does matter a lot. The chargemaster is one variable in the Rube Goldberg device that determines how you are reimbursed for the work your organization does. It also matters in public perception, but you should have known that for the past decade or so.
Still, take solace in the fact that you have time to rectify the situation. Or so suggests a report from Moody's Investors Service that maintains that the near-term credit impact of the big CMS data release is minimal. (Moody's is supposed to be in the business of measuring risk, after all, for institutional investors in your bonds). The report says, in part:
"The CMS data provide transparency in hospital charges, but given the fact that the actual price for a given service depends on the negotiated price between the hospital and insurance company, the disclosure of charges does not allow consumers to compare actual prices. Therefore, we believe the immediate credit impact to individual hospitals and the industry as a whole is minimal."
Never mind that consumers are the last group hospitals should worry about comparing their prices, but over time, says Moody's, greater threats will come from payers, employers, and yes, Washington, DC. For this time period, the credit rating firm is more concerned along these lines:
"First, it's conceivable that a hospital system may adopt price transparency as a marketing strategy. Such a strategy would appeal to large self-insured employers and price sensitive consumers (ie: those with high deductibles or co-insurance rates) shopping for discrete, non-emergent healthcare services such as hip or knee replacement, bariatric surgery, elective heart surgery and other procedures.
This strategy could be national in scope and would not need to be limited to a single market or region. There are already examples of domestic medical tourism whereby a hospital provides a discrete set of services for a flat fee. In some cases, the hospital also offers a quality guarantee." (italics are mine, because I'll have a story out about this in the July issue of HealthLeaders magazine, so stay tuned.)
Also from the Moody's analysis:
"Second, the data could also be used by third parties advocating for change among hospital pricing and billing practices. The cost of healthcare services is receiving significant media attention and is the subject of intense political debate in Washington DC as federal healthcare spending on Medicare and Medicaid are significant drivers of the federal deficit. California already requires hospitals to disclose data on charges (similar to what CMS has published) and similar requirements are under consideration in other states including Maine and North Carolina.
Massachusetts enacted legislation to limit the growth in healthcare costs to state GDP, and numerous states have rejected insurance premium increases deemed excessive. Although none of these actions is individually responsible for a slowdown in healthcare cost, collectively they point to the significant attention policymakers are giving to the issue of healthcare costs.
It is conceivable that states will require additional disclosure on actual prices paid, inviting greater regulation of the industry. Such a development would have material impact on hospitals' marketing and billing strategies and would carry negative credit implications for those that are slow to adapt." (emphasis mine)
How much hospitals charge for the same procedures (source: The New York Times)
So, even if you can't kill your chargemaster, you can modify it appropriately, and by doing so, you could go a long way toward rationalizing the insane numbers that make it up. Better yet, perhaps you could adopt a strategy of being the low-cost, high quality leader in your area.
At its core, this data release paints a portrait of what a screwy health reimbursement system we have in those numbers in black and white on the map application I steered you to last week at the New York Times.
Anyone can look into the black box that cooks up their payment rate and make a reasonable guess as to whether their the high-cost outlier in their area. Those numbers have the power—at least in non-near-monopoly markets—to steer business to competitors if the difference is enough.
Even if that educated guess isn't enough to move your customers (that is, payers, employers, and patients) to the competition, you can bet they'll assume the worst, and at the very least ask you to prove that you're not the high-cost outlier, despite what the CMS data says about your chargemaster and what the government pays you.
So, your commercial payers and local employers are looking at it, even if individual patients aren't—yet. That brings us to the health insurance exchanges, which, at least in states with significant payer competition, may prove another blow to high-cost hospitals.
What some hospital leaders don't seem to understand is that you are doing the work, and you're billing for it, despite how screwy the system is. So, although blame can be heaped upon the government for getting you into this mess—and the former CFO above makes a good case for that—you are at the end of the line. You're holding the bag on public perception.
Besides that, it's tough to successfully claim hardship when your hospital has that 10-story crane building a new patient tower and attached parking garage.
This is not an attempt to demonize hospitals. All I'm saying is don't be caught flat-footed as the high-cost leader in your area. Take small steps to rationalize your pricing structure so you don't have to make big gouges later, when the government, individuals and commercial insurers start to hold your feet to the fire. In the meantime, use this reprieve to find a better way. Let's stop being victims, shall we?
Whether boards are too large, too unwieldy, or have members who are underqualified to effectively provide strategic direction, many of them need help to deal with the new realities of healthcare.
This article appears in the May issue of HealthLeaders magazine.
For decades, healthcare has been a complex, highly regulated enterprise. However, senior leaders and the boards that supervise their work could at least count on an industry of relative stability and predictability.
In 2013, that's no longer the case.
With unprecedented upheaval in reimbursement and changes in quality and safety standards already under way, with more to come, organizations are under pressure to either remake their business and clinical processes themselves or find a willing partner that can help. As the industry consolidates around them and as dance partners for the future are chosen, proactive boards are starting to realize where they are falling short.
And falling short they are.
The HealthLeaders Media Industry Survey 2013 finds that while 66% of CEO respondents say their boards are strong or very strong, 11% say their boards are weak or very weak. While that latter figure may not seem like a high percentage, only 2% of CEOs have the same low opinion of their leadership team and only 5% give such weak ratings to their physician, nursing, and finance staffs.
Whether boards are too large, too unwieldy, or in some cases have members who are underqualified to effectively provide strategic direction in conjunction with executive leadership, many of them need help to deal with the new realities of healthcare.
Uncertainty and a declining future revenue picture have a funny way of kick-starting action. Many healthcare boards, realizing they may have a deficit of skills and savvy, are now running at top speed to gain the knowledge and depth of expertise necessary to help lead their organizations.
"We're all going into a new world here that is really not well defined," says David Goldsmith, board chair at John Muir Health in Walnut Creek, Calif.
A crisis situation?
Gary Ahlquist is a senior partner at the Chicago location of Booz & Co., a global management consulting firm, and specializes in healthcare strategy and organization development. He says the level of uncertainty surrounding future reimbursement and quality and safety standards has pushed boards to seek to work directly with his team, where in the past, most of that work was done with senior management exclusively.
"Generally you would do strategy with the CEO and the executive team, but boards are apoplectic," he says. "It's not that they distrust management, but they feel such a level of uncertainty that they want us to help assess strategy together with management."
Ahlquist says his research shows that the healthcare sector, especially hospitals, could see a 20%–25% net revenue decline in the next five to 10 years.
"One result of that, plus other factors, is that we expect somewhere around 1,000 hospitals to be realigned or reaffiliated," he says.
That number represents about a fifth of the current number of now-independent entities, mostly hospitals, that Ahlquist says will no longer be so, depending on the posture of the federal government surrounding consolidation. That's a lot of hospital boards facing the possibility of their dissolution and considering a very different future for their organizations.
But first, many boards have to get educated to be equipped to thoughtfully consider the long-term viability of their organization. In addition to owning and leasing hospitals, Community Hospital Corp., based in Plano, Texas, runs a consulting arm that spends about half its time with boards considering strategic alternatives to independence.
Mike Williams, the company's president and CEO, says getting to the point of understanding the forces acting upon those hospitals related to the Patient Protection and Affordable Care Act requires some remedial work with board members.
When they or their CEOs hear about big systems merging for protection, offering as an example the Baylor and Scott & White Healthcare merger in Texas that was announced recently, Williams says boards are wondering what the big organizations know that they don't.
"We're spending a lot of time educating them as to the impact of the ACA, the impact of bundled payments and alignment with medical staffs, and we're challenging them to test factually and quantitatively the viability of their organization on a standalone basis."
Williams says changes to the way boards conduct their business are myriad, but that in many cases, the changes aren't happening fast enough. For example, nominating committees are looking at competencies and asking whether certain individuals are capable of understanding this complex industry, whether they are willing to make tough decisions, whether they are able to invest the vast amount of time that being a hospital board member takes, "because the one-and-a-half-hour lunch board meeting is history."
Progressive boards are making the effort to ensure there is a rotation of terms and an opportunity for members to become educated about healthcare. That means maintaining their position for enough time to make a difference. Increasingly, best practice recommends three three-year terms as a commitment.
"It takes one to two years to understand what's going on," says Williams.
Once a committed, well-rounded board is in place, the committee structure is much more robust than ever before, particularly in the quality committee, he says.
"Ten years ago, how many boards had an active quality committee? Very few," he says. "Now, boards not only have one, but it's the most active of the committee structures," Williams says.
The quality function traditionally had been relegated to the chief medical officer and physician representatives on the board. Now, quality committees have multidisciplinary clinical representation and are actively looking at criteria-based results, especially when it comes to public data. And audit and compliance committees are more active than ever before.
Historically, one of the first reports in the board meeting was from the finance committee, Williams says. Now, quality and compliance are at the top of the agenda.
In the past, competent board members who looked at themselves as business leaders delegated clinical matters to the physicians. "But now they really have to understand clinical outcomes, how they're being graded, and how it affects reimbursement," Williams says.
When their education about the forces acting upon their organization in today's healthcare marketplace is sufficient, Williams says board members can be a big help in working in the public arena on advocacy and the education of legislators.
"Once they really understand what's happening in healthcare due to the ACA and other business imperatives, they can call legislators and explain how their decisions will affect the hospital with which they serve on the board," he says. "A lot of these people are highly influential anyway, and if they can speak with understanding to the issues, that makes a lot of difference to the elected official."
The most obvious change in boards Williams has dealt with is the sense of accountability they now place on the CEO. Historically, the board may have been led by the CEO and the directors simply affirmed his or her decision-making. Now boards are much more engaged in setting strategic vision for the organization and holding management accountable for achieving that through operations, he says.
"But they're saying, 'Don't just do it, show us how you're achieving that vision,' " he says. "There are some CEOs who are not as excited about having board members in their business as they should be, but thank goodness it's happening."
In an anecdotal example, CHC and Williams were called in to assist a hospital in an urban marketplace that he prefers not to name for obvious reasons. "They have a history of success. You would know them," he says.
On the day Williams arrived to meet the board and attend his first meeting, the board chairman opened the meeting by reminding his colleagues to get their continuing education trips scheduled, and that hospital administration would make arrangements for them. He suggested many East and West Coast opportunities for board education at tony resorts.
"The irony of that is that he was encouraging them to spend money when they had three days cash on hand. Their heads were stuck in the sand, and that's because the CEO had not kept them informed about the hospital's need to change. They were on the brink of failure and they didn't know it."
Williams and CHC eventually led a multimillion-dollar turnaround there, he says, "through basic blocking and tackling."
But they were lucky. If a hospital is too far gone financially or has not retooled to better respond to the fact that it is being judged on other factors, board members may be in for a rude awakening, he says.
"There will be hospitals that will close. Many board members have never thought about living in a community where there was not a hospital, but for first time, they're being challenged by demographic and economic factors they have never faced before," he says. "I love to tell boards that the more control you desire to keep, the less access to capital you'll have."
Many times that is reflective of how an organization has been managed in the past, and there's only so much that can be done to change the pecking order now that so much time has passed and so many healthcare organizations are so far ahead of them.
Right mix and size
As a longtime Bay Area venture capitalist who has served on various for-profit boards over his career and on John Muir Health's for seven, David Goldsmith may be better prepared than most to help lead his board and advise senior management. But in light of the changes facing his board at the Walnut Creek, Calif.–based system that includes a 572-licensed-bed trauma center, another 313-bed medical center, and a 73-bed psychiatric hospital, he remains humble.
"I've been in healthcare for 40 years, but I'm still learning," he says.
John Muir Health's board, at 19 members currently, has a wide mix of backgrounds and expertise. Eight are physicians who are nominated by the medical staff and by their medical groups at each of the system's two hospitals and whose terms are limited to nine years.
The rest of the board is made up of community members of all stripes. As it serves a culturally and racially diverse population, Goldsmith says the board is careful to look at racial and gender diversity in addition to seeking out particular skills and perspectives the organization may lack.
But it may be too big. It can be tough to manage board composition when the somewhat competitive goals of community representation and range of expertise conflict.
"The literature on boards says you should be in the single digits," he says. "Seven or nine is the ideal number. We're in the high teens, which does put a lot of people in the room at the same time."
There is disagreement on ideal board size, though.
"We have 23 or 24 board members," says David Atchison, board chairman for 259-bed Elmhurst (Ill.) Memorial Healthcare. "Good governance would suggest we should have a 13- or 15-member board."
Regardless, both board bosses would prefer a smaller group than they have.
Balancing size and levels of expertise can give healthcare board chairs headaches.
Given the size of the John Muir Health board, Goldsmith says they have not as yet used executive recruiters to help find board members with certain skill sets, but that he has used them in the for-profit realm and would not rule it out.
"The risk in not doing it is that we tend to hear only about potential board members who look a lot like ourselves," he says. "We have talked about it, but I think in order to get a more diverse board, we may at some point turn to one of the recruiting firms."
The board at CaroMont Health, parent of 435-bed CaroMont Regional Medical Center just outside of Charlotte, has a more reasonable board size, according to the experts, but maintaining a board of only 14, 13 of whom are appointed by county commissioners, leaves little space for recruiting some of the expertise that Board Chair H. Spurgeon Mackie Jr. feels will be necessary to meet the goals of healthcare reform, among other strategic imperatives.
"We've given some thought to maybe expanding the board by maybe a couple more spots," says Mackie, an executive vice president with IberiaBank. "We've thought about allowing a couple of them to be from outside the county, partly because we have minor operations outside the county," and partly to find expertise that might not be available so close to home , he says.
Filling holes in expertise and skill
Especially in a community hospital environment, qualifications for membership on healthcare boards have traditionally been minimal. The most important aspect was always that the board reflected the community and had diversity of background and skills. That's no longer enough, say experts. By necessity, healthcare boards are becoming more thoughtful about how they recruit new members.
For example, recruitment for the board at Elmhurst had always been through word of mouth, with an emphasis on geographic representation in the service area, says Atchison, whose day job is president and CEO of Ponder & Co., an independent healthcare-focused financial services provider based in Chicago. Recruitment there has now become "more refined and thoughtful," he says.
"Now, we're looking for certain skill sets to complement the existing trustees, and it's important that we have physicians and other allied health representatives on the board," he says. "That said, we are more or less a typical community hospital board with people who have participated for a number of years, are civic leaders, and are interested in healthcare."
Though not speaking specifically about the Elmhurst board, that lack of specialization could be a problem for any community hospital, says Carol Geffner, PhD, president of Newpoint Healthcare Advisors, whose area of expertise is board governance strategy and change.
"One of the things I've seen firsthand is board members who do not understand, in depth, the linkages between transformation, culture, and physician alignment to performance and hospital reimbursement," Geffner says. That can show up in different ways. But having that expertise is critical because executive leaders will be expected to execute the strategy the board articulates. "Issues such as transformation and culture are now business issues, whereas in the past they might have been viewed as soft. Today they are directly tied to performance and reimbursement," she says.
Atchison, for one, seems to understand that. Whether the board has those capabilities or can attract them is less certain.
"As we move forward with consolidations in healthcare, we'll end up with multibillion dollar–revenue organizations," he says. "Those will seek to attract a higher caliber of trustees, if you will, that reflect a number of different skill sets or may not be in the service areas of the hospitals that they operate."
Elmhurst's board is not standing still on that front. It's created a governance committee to review its current structure and has engaged an expert to advise directors on how to integrate those skills into the board. Some of the ideas were implemented and others were deferred, but the whole process started with an education on best practices "and how we lined up against those, and then we started a work plan to, over time, implement them," Atchison says.
He says Elmhurst's board is deficient in several areas, but good to very good in others. For example, for reasons of history, he says, there are no limitations on tenure. Rather than implement term limits, as many other systems do, Elmhurst does an in-depth assessment each year of all the trustees.
Atchison says locating the high-level skill sets Elmhurst may need is not easy, even drawing from Chicago, the nation's third-largest city, which presumably would have experts geographically close by who could serve on the board.
"Very few nonprofit organizations have a specific plan to recruit specialists in certain areas," Atchison says. "They may be lucky in finding a great HR person in corporate America who lives in the community, for example, but I think that's the next step for community hospitals—to put in place a recruitment process and work plan that attempts to do that."
Technology and social media also are becoming important in governance, says Newpoint's Geffner. "Because of the trend and need for transparency, social media also now plays a major role relative to a hospital's public reputation, community impact, and brand. At the governance level in the post-reform environment, it is helpful for boards to factor in the impact of social media on strategic decision-making."
Goldsmith, of John Muir Health, identifies managed care expertise as one skill set that is on his board's recruitment matrix, and they are trying to fill that gap because he says that expertise might be the biggest deficiency for community hospitals accustomed to the fee-for-service world.
"Historically a relatively small percentage of patients have been at risk. But as we look to 2020, the majority of patients might be at risk," he says. "That turns everything 180 degrees from what we and other hospitals have been doing for 40 years."
Similarly, fresh ideas are needed. Goldsmith says his board, for example, would consider bringing in as a board member what he calls a "No. 2 or No. 3 individual" in a noncompetitive health system in a separate geographical area.
"I know of a number of nonprofits that have done that or are in the process of doing it," he says. "We have not, but I think it would give us some additional viewpoints—a pretty exciting win-win."
Mackie, of North Carolina's CaroMont Health, says his board and CEO identified a need for expertise on quality.
"As we were moving into quality, we wanted more of a scientific background," he says, so they recruited Sheila Reilly, PhD, a professor of biology at local liberal arts college Belmont Abbey. "She brought to the board a higher level of scientific background."
Focusing on strategy
Especially during this time of transition, boards should make sure they're focusing on strategy, not operations, says Goldsmith. That advice should be obvious, he says, but only relatively recently has his board really embraced that role.
"Historically, a lot of board meetings were taken up with committee reports and repetition of what's in the board package distributed before the meeting," he says. "But now we operate under the assumption they've read all that."
He says he makes sure to maintain that focus by stressing seven strategic objectives for the year on the first page of the board package distributed prior to meetings, and credits his predecessor, the outgoing board chair, for moving discussions more toward strategy.
"My expectation will be that if you come, I assume you've read it, and if you have questions, you'll pick up the phone and call the relevant executive before the meeting, get your questions answered, and be prepared to discuss strategy. Having said all that, it's always a battle. If the board is to be of any value, we have to focus on strategy."
Failing the ability to attract certain individuals to the board, Atchison seeks input from a wide variety of sources. Some experts, he envisions, could be guest speakers at part of the board meeting.
Such presentations could help board members understand the constituencies Elmhurst serves or the perspectives it could take advantage of, from managed care to strategic consulting to business development, nursing and marketing and brand management, and corporate leaders, like CEOs and CFO of large companies.
"Volunteer boards often largely take direction of the executive management team," Goldsmith says. "Increasingly, boards need to be more strategic and proactive in orientation and spend less time in oversight of operations."
Ahlquist says historically, this focus on strategy has come and gone in healthcare, especially at the board level. "In past years, changes in our industry tended to be focused on one aspect. Not to say they were small, but when HMOs came in, we saw disruption but not a lot of change at the Medicaid and Medicare level. Now everything is changing," he says.
Now, boards increasingly have to make participation decisions with other providers. They have to make strategic decisions on tech spending or the level of consolidation they're comfortable with. Ultimately, Ahlquist says, boards have to make the "big" decision: "Can or should we stay independent? Can we handle the level of change coming upon us or do we need a partner?"
CaroMont's Mackie says board members sometimes have difficulty recognizing the difference between being in leadership and governance, but CaroMont's board has evolved with what he calls stronger committees, adding that members do a lot of work through the committees rather than the whole board.
Quality gets more agenda time, and so do readmissions, "which we know will impact reimbursements," he says. "We actually do a lot of the standard reporting in the consent agenda so we have more time left to dedicate to strategy."
What about former execs?
Despite all the focus on strategy, however, Newpoint's Geffner says she has seen a lot of interest from boards in recruiting former, perhaps retired, healthcare executives, because they "can assume both a governance and operational perspective."
If a board has an appreciation of the competencies it needs, and if a former hospital exec possesses those, she says, it's a really good idea to have that voice at the table. "Having an understanding of operations is of value in the boardroom," she says.
Many retired healthcare executives serve on hospital boards. Dan Wilford, who retired as CEO of Houston's Memorial Hermann Health System in 2002, is a past director on the board of the Mobile Infirmary Association, parent of the Mobile (Ala.) Infirmary Medical Center, and is currently on the board of St. Joseph Health, an integrated delivery system with hospitals in California, New Mexico, and Texas. Many other former healthcare executives do this, but they are in high demand, says Williams of CHC.
But there's a dilemma. At the same time, Geffner says, if board members defer to the former executive too often, it may cause challenges to meeting their fiduciary responsibilities—not to mention possible conflicts with the CEO and executive team. They should be extra careful, in such circumstances, to encourage diversity of opinion and different points of view.
"If you have former hospital leadership in the boardroom, if practiced well, that point of view can also understand the CEO and executive team's perspective."
But ultimately, she says, it all comes down to developing a culture of openness, transparency, strong leadership, and an investment in being what she calls a "learning board."
"If those practices and points of view are in the boardroom, you will optimize the talents in that room," she says. "But you could take the same people and a culture that doesn't look like that and you're suboptimizing the talent in the room."
Reprint HLR0513-2
This article appears in the May issue of HealthLeaders magazine.
This article appears in the May 2013 issue of HealthLeaders magazine.
Medicaid is widely regarded as a poor payer related to costs, but hospitals, especially the nation's safety-nets, are eager to get more of their state's residents on the plan nevertheless. That's because Medicaid's reimbursement rate, which varies by state, is much better than nothing at all, which is what many hospitals claim they get, in reimbursement terms, from treating the uninsured.
But getting more of their patient mix from Medicaid patients rather than the uninsured will be difficult for those in states that have so far refused to expand their Medicaid rolls. Refusing expansion, of course, is their right, according to the Supreme Court's 2012 decision on the constitutionality of the Patient Protection and Affordable Care Act, in which the Medicaid expansion is enfolded. But doing so might not only transfer funding to states that do expand, but it also might leave safety-net hospitals with the same costs to treat the uninsured, while other sources of funding, such as disproportionate share dollars, are reduced over time.
As HealthLeaders went to press, 14 states still have refused to participate in the Medicaid expansion, which would take effect in 2014 and make adults with incomes up to 138% of the federal poverty level eligible to enroll. The problem, say state governors who are resisting, is that although the federal government has agreed to pick up all of the tab for the first three years of expansion and 90% thereafter, there is no way to ensure that future Congresses will keep those promises, meaning states could be on the hook for more than they bargain for under current rules.
The problem for hospital leaders, however, is that if a state does not choose to expand, hospitals in those states will be forthwith at a severe disadvantage to their counterparts in other states not only because they will miss out on additional Medicaid-based reimbursement, but also because they will face the same cuts in disproportionate share funding that their counterparts in other states will see.
"The most vulnerable hospitals will be major safety-nets in urban areas that are currently treating patients who don't have health insurance and that are dependent on local funding and disproportionate share funding," says Bruce Siegel, MD, MPH, president and CEO of the National Association of Public Hospitals and Health Systems, a Washington, D.C.–based organization that lobbies on behalf of its members. "We'll see this funding drop, and will also see continued pressure on the local funding side because of the economy."
Those dollars lost will be significant, he adds. An NAPH study released late last year found that hospitals could face an increase in uncompensated care costs of $53.3 billion by 2019 if a substantial number of states do forego expansion, coupled with an estimated loss of $14.1 billion in disproportionate share funding.
For most safety-net hospitals, many of which already get by on local tax subsidies, such a drop in revenue could be devastating not only for them but for other hospitals in their states, which would presumably see increased bad debt and funding shortfalls where treating the uninsured is concerned.
Revenue issues apply statewide
Safety-net hospitals will initially bear the brunt of their states' decisions not to expand, says Siegel.
"If you're a hospital today that has mostly paying patients and very little charity care, you should be okay, at least in the short term," says Siegel, who previously served as president and CEO of Tampa General Healthcare and also of New York City Health and Hospitals Corporation. "You're not counting on coverage expansion and you don't need disproportionate share and you're probably not getting much of it right now anyway. But if you're a safety-net hospital, you have potentially the worst of all
possible worlds."
For John Haupert, CEO of Atlanta's 650-staffed-bed Grady Health System, that could mean an annual loss of tens of millions in reimbursement for an already fiscally challenged public hospital system.
By 2016, when disproportionate share funding scales back to 50% of its current levels, "we lose $45 million a year," he says.
But on a longer-term basis, other hospitals will also be negatively affected.
"All hospitals have skin in this game," says Siegel. "A lot of hospitals maintain their margin because of the safety-net taking the uninsured, and if that goes away, they will bear the brunt. That's not a secret to them, but still a threat."
The haves and have-nots
Though the states that have so far refused still can accept Medicaid expansion, safety-nets in states that refuse expansion are likely to be most at risk.
And though Grady's Haupert expects much to change in coming years surrounding the Medicaid expansion, he and his board are having to make long-term plans to deal with lots of potential challenges. And it's frustrating to them that hospitals are in a political fight they didn't ask for.
"Already we get a disproportionate unfunded mandate. That's our mission and we have some local tax support, but the bigger issue for us is that the way the law is written, you're going to give back 50% of your disproportionate share funding even if they don't expand," Haupert says.
"The diabolical thing is we have an uncertain insurance expansion and a certain cut in disproportionate share," echoes Siegel.
If nothing changes, that would mean huge disparities in how much reimbursement similar safety-net hospitals in other states would get versus hospitals in states like Georgia.
"Many say this is too good of a deal to pass up because if the feds don't deliver on paying for the expansion, you can unwind it," says Haupert. "Our reality, though, is that I don't see us expanding immediately."
For Haupert and his board, that means serious consideration of cuts in services, and with a $45 million annual hole to fill, and it's not idle talk to discuss eliminating money-losing services, like behavioral health, he says.
"We'll eliminate or reduce clinical services, period," Haupert says. "One example I gave to the governor [Republican Nathan Deal] personally is that Grady is the state's second-largest provider of mental health [care]. If this happens, can we continue to provide it? We could save $25 million to $30 million a year by not doing it, but what does that do to the state? In this case the law of unintended consequences is significant."
Other hospitals in less populated areas of the state, he predicts, will simply close.
"We have 15 hospitals that will close if the state does not expand its Medicaid program or we don't get the disproportionate share funding issue resolved, and I don't see too many governors who want that on their hands," he says.
Many of the states that are so far rejecting the Medicaid expansion are the same ones that are not planning on setting up insurance exchanges on their own. Though both pieces of the legislation have serious implications for hospital revenue, the delays that are expected to surround states that aren't setting up exchanges could have a knock-on effect on revenues for hospitals in those states.
Hard lobbying
Like Haupert, Siegel says hospital leaders need to take their issues straight to their governors and paint the picture. He says it can be effective to partner with businesses to push for the expansion.
"Not expanding is an act of fiscal insanity. This is a core economic issue," he says. "States that do not expand are literally taking their federal tax money and giving it to other states. It's hurting patients and small businesses in your state."
But some governors seem steadfast, at least for now. That's why, in parallel, NAPH and hospitals that will be affected by the disproportionate share funding drop are working on possible modifications to that piece of the law. But as Haupert says, hospitals are caught in the middle of two government entities engaging in high-stakes brinksmanship.
"Someone's going to have to blink," he says. "HHS is going to use the disproportionate share issue to the final minute to get the s and years, especially surrounding adjustment of the disproportionate share cuts.
"All of us should be working really hard to educate our governors and congresspeople about the reality of the DSH cuts," Siegel says. "That will take some time. Right now, the reductions are still a few years out—they don't start getting big until after 2016, but in an atmosphere of gridlock, it's hard to get action until a disaster is about to occur."
Of course, if modifications are made to disproportionate share funding to help alleviate the burden on hospitals in states that won't expand, some might see it as a reward for political intransigence.
"If they let the number of uninsured drive the calculation, they'll have to take disproportionate share money away from states like New York and California and give it to states like Texas," Siegel says, "which would be ironic. There are lots of carrots and sticks in play here."
Reprint HLR0513-5
This article appears in the May issue of HealthLeaders magazine.
Regardless of how your organization looks on the massive list of hospital pricing data released to the public by the Centers for Medicare & Medicaid Services, you've got some strategic thinking to do.
When you came to work yesterday, surely you spent some time combing through the massive amount of data released Wednesday by the Centers for Medicare & Medicaid Services regarding hospital procedure pricing.
After your tour through data on your hospital or health system and your local competitors, you're either embarrassed or pleased, depending on where your hospital or health system landed on the continuum. Probably, you're feeling a little bit of both.
Likely, you're pleased if you landed right in the middle. If you're at either end of the price continuum, you're likely looking for ways to address the problem. But regardless of how your organization looks on the list, you have some work to do.
Hospital pricing, as we all know, is complex. But if you're the CEO of Brookwood Hospital in Birmingham, AL, and your hospital is charging $87,065 to treat chronic obstructive pulmonary disease while across town, St. Vincent Hospital is charging $23,245, you have a problem today where you didn't yesterday.
But wait, you say, Medicare isn't paying Brookwood the full amount (it's actually paying $7,473), and it's not paying St. Vincent that amount either (it's actually paying $7,027).
Since the two are in the same small geographical area, Medicare is paying them both roughly the same amount for the procedure. As you know, Medicare pays based on a system of standardized payments based on the DRG.
In fact, many of you would argue that the chargemaster prices cited above, and throughout the CMS data release, are irrelevant given the actual reimbursement amount. OK. I'll buy that. Anyone who knows healthcare would buy that. But that doesn't mean the "list prices" are meaningless.
If the chargemaster prices are so irrelevant to your organization's reimbursement, why do they exist? I've never gotten a satisfactory answer to that question in nearly 13 years of covering healthcare.
The only reason must be that since commercial insurers also negotiate to get the best deal they can and often start negotiations with Medicare payments, that the list prices are intended for the uninsured.
Several stories in the trade media over the past 10 years have focused on the role the chargemaster plays in billing the uninsured for care. Court cases on hospitals' nonprofit status have been based at least tangentially on chargemaster billing, as have Congressional hearings and the beefing up of requirements for hospitals to justify their tax exemption through the IRS.
TimeMagazine didn't discover the practice of billing the uninsured based on the chargemaster. ButSteven Brill's article has received a lot of attention not only for its comprehensiveness, but also for its focus on real people who are paying "full boat."
So don't tell me chargemasters don't matter. They clearly do for some people.
In stories I've written about charity care policies, nonprofit status, the cost of the uninsured to hospitals, and so-called patient-friendly billing, hospital and health system senior leaders insist that chargemaster prices represent a data point for negotiations with private insurers.
Even then, they say Medicare rates are a more relevant starting point. But this is where market dominance is so important. If you have the network insurers must have in a local area, you have a lot more firepower in negotiations, which allows you to get more "real" reimbursement than your less connected neighbor hospital. All of that is just noise to most patients.
With the release of this data, however, chargemaster pricing insanity is right there in black and white, which makes it relevant, at least in the game of perception. How should you react if, say, you are among the highest-charging hospitals in your local area? In your region? You probably don't want that label.
After all, it's as easy as the click of the mouse for patients and employers to see what you're charging and what Medicare is paying you. Besides that, local media is likely calling right now for an explanation, and they're as clueless about all of this as your patients probably are. All they see is the crazy variation.
So it's at least a public relations problem. But treating chargemaster variation as a public relations problem is what has gotten hospitals collectively into this mess.
Using the New York Times's wonderful map application to look at various hospitals is almost too easy. I spent the better part of an hour just clicking around to see the differences in local areas. Just click and compare prices. It's that easy—and it's fun—of a sort. I spent a good amount of that time looking at pricing in Nashville, where I live.
A major joint replacement at St. Thomas Hospital, an Ascension hospital, is billed to Medicare at $45,029, and Medicare pays $12,081. At Vanderbilt University Medical Center, a teaching hospital, a major joint replacement is billed to Medicare for $59,822, and Medicare pays $18,386. I can reach both of these hospitals from my house in five minutes. Which one appears to be the better value, no matter who's paying?
And finally, insurers should ponder the relevance of the release of hospital pricing data. In my experience, they use chargemaster data to show you, as a patient, how much they're doing for you in getting cheaper care.
If you pay first-dollar coverage like I do, you cast a jaundiced eye at explanation of benefits memos that list the charge for the care and then show you the negotiated rate as a means to convey how much they've saved for you based on your premiums. Others likely see that information less cynically, but they're learning.
If chargemasters are so irrelevant to reimbursement, find a way to get rid of yours.
And if they're not irrelevant, find a way to make sure yours doesn't portray you as a greedy outlier, because this is only the latest attempt to shine the light of day onto how we as a nation pay for healthcare. Others are on the way.
If you've not been following the news surrounding the use of the False Claims Act to snare providers for Medicare fraud, let me catch you up. On April 2, the 6th U.S. Circuit Court of Appeals in Cincinnati overturned a lower court's $11 million judgment against MedQuest Associates Inc., a diagnostic imaging company. MedQuest had been accused of a False Claims Act violation—in other words, fraud—for violating Medicare's conditions of payment.
So what's the big deal? What's $11 million to an operator of more than 90 diagnostic imaging centers? Well the decision's importance has little to do with the amount in question. Some attorneys think it will be precedent-setting, in that good faith efforts to comply with the myriad (and that's putting it lightly) regulations involved in Medicare contracting are ultimately worth the effort.
That's because the court ruled that since the regulations MedQuest was accused of violating are not conditions of payment, bringing a suit for violations of the False Claims Act (as the Department of Justice did in this case) is not appropriate.
Instead, said the court, such violations are addressable within the administrative sanctions CMS has available, including suspension and expulsion from the Medicare program.
The suit, which was fueled by information disclosed by a former MedQuest employee whistleblower, asserted that the company used physicians in its employ who were not designated to monitor the procedures. There was no question over whether the work was done or whether the violations occurred.
What MedQuest did, however, isn't fraud. At least in the eyes of the court.
"What's most significant legally is that the 6th Circuit said that the FCA is a powerful and blunt instrument and is not appropriate to police regulatory compliance issues in the complex medical arena," says Ty Howard, a partner in the white collar crime defense and healthcare groups at the Nashville-based law firm of Bradley Arant Boult Cummings.
A former federal prosecutor of white-collar fraud, Howard says the court isn't necessarily saying that what MedQuest did is OK, but that the remedy should not come through the FCA. "That's significant for the industry, because with the use of this powerful tool with its trebling damages—the judgments rack up quickly."
Howard says the MedQuest decision is precedent-setting when viewed in conjunction with another suit filed under the FCA that the same court overturned last fall.
In a case brought against Renal Care Group Inc., a dialysis provider, the 6th Circuit overturned another interpretation of the FCA as overly broad. In that suit, the Sixth Circuit ruled that medicalservice providers that have established separate corporate entities to maximize corporate profits and take advantage of separate Medicare reimbursement programs do not inherently violate the False Claims Act.
That's especially true since Renal Care sought guidance from regulators regarding Medicare regulations that could be interpreted in different ways—in other words, that are ambiguous.
These decisions are a relief to a wide range of healthcare providers who are promoting a culture of compliance, but who fall short, nonetheless. After all, CMS is still free to suspend or exclude firms that make these kinds of mistakes, and they don't have to clutter up the court system to do so.
It's common sense, and it makes you realize that when you're dealing with an entrenched bureaucracy, common sense isn't so common.
Howard says the rulings and precedent can be boiled down to the difference between two phrases: "condition of payment" and "condition of participation."
"By submitting a claim, you have to be in compliance with a myriad of regulations. If the violation surrounds a condition of payment, that can give rise to FCA," he says. "But if it's a condition of participation, that is not going to rise to FCA liability."
That doesn't mean you can afford to be lax in Medicare billing or oversight. Suspension and exclusion are still options, and, as Howard points out, "those are not insignificant penalties."
But disgruntled workers are out there, and given the fact that they can share in any recovery in fraud cases, whistleblowers will continue to serve as an important tool against fraud. But perhaps the outcomes of these cases will make people who are looking for an easy payday think twice before running to the Department of Justice when an "I" is dotted wrong on a claim.
While an appeal to the Supreme Court is possible, Howard says it is unlikely, and even if appealed, the Supreme Court, of course, picks and chooses the cases on which it will rule judiciously.
Perhaps now the Department of Justice will take a similar approach in deciding which potential fraud cases to pursue.
"Many of these cases never get into court. If you're risk-averse, and face criminal penalties as well, that is huge leverage for the government," says Howard. "It's heartening to know that sanity is being restored in these types of cases. The real hope is that the government will take a more judicious view of these cases and take cases that really merit it."
While it's often claimed that the legal resources of the federal government are unlimited, that only seems true to an individual or company facing the legal might of the U.S. Government.
When you look at the big picture, the department has to make choices. Let's hope they make better ones in the future to catch those who are truly defrauding Medicare, and not through lax oversight of payment rules.
My colleagues and I spend a lot of time and effort trying to understand the forces that are acting upon healthcare leaders these days. If it seems the level of transformation being asked of healthcare leaders is without precedent, it is, at least since the debut of Medicare.
I can think of no other industry where the stated goal of reform is to shrink its overall size and influence on the economy. Yet healthcare is asked to do this.
In many ways, healthcare leaders must balance that priority with the even greater priority of growing their healthcare systems and keeping them financially healthy. If they're participating in ACOs (in some cases, they have no choice), their incentives and their motivations are at cross purposes.
A body cannot serve two masters—except—some contend, in healthcare. Whether or not it is possible is to be determined.
Some recent research brings numbers and statistics to bear upon the predicament. MedeAnalytics, a healthcare performance management company, has identified metrics used in a variety of ACO constructs.
Guess what? They're not standardized.
Until many of the incentives are, it will be difficult—if not impossible—for CEOs to lead their organizations into standard practice protocols for the same reason: It is difficult to serve two masters. One might reward an activity while the other may punish it. Most of the incentives aren't diametrically opposed, but the fact that they are different makes this work exponentially more difficult.
The research report (registration required) doesn't answer the question of how senior leaders can be expected to grow their organization, its revenues, and its profits while at the same time decreasing the cost of care. It does provide some hard evidence that in some cases, healthcare leaders must serve not only two, but many masters.
Of course, I'm talking about the different ACO constructions that are proliferating. One of the conclusions of the research is that commercial ACOs place greater focus on the areas of cost reduction and ambulatory process, while Medicare ACOs emphasize quality outcomes.
These findings get at what I've been questioning for some time as a fundamental problem with the ACO structure at the operational level. It's paralysis not by analysis, but by rules. How can you have one process that would be optimal for one payer at the expense of the other payers with which you have ACO contracts?
If the answer is you can't, then how do you prioritize?
For some answers, I talked with Ken Perez, a MedeAnalytics' senior vice president and director of healthcare policy. He says the reality is that senior executives are making a choice here. Largely, they're choosing to serve only one master at a time, at least until they feel they've got this value-based purchasing challenge figured out with one payer.
"If you're a rational decision maker, you figure out your Medicare share, and whether it's below average," Perez says. "If it's 20% of your business, you care about it, but maybe not as much."
In other words, maybe in that example, you're not interested in an ACO construct from CMS.
"If you're in central Florida, with 90% of patients on Medicare, you're not multipayer," he says. In other words, commercial ACOs hold no appeal for you. "It all comes down to where your bread is buttered."
The point of the new research, Perez says, is that it gives you the rules of the game at a high level. For example, commercial ACOs place greater focus, not surprisingly, on areas of cost reduction and the ambulatory process, while Medicare ACOs emphasize quality outcomes.
The metrics overlap to some degree, but participation in more than one ACO means you either have to implement different standards and protocols for each patient population, or you have to be willing to lose out on some metrics to better meet others, and to keep from driving your clinicians crazy. That depends on your payer mix, of course, as well as your ability to leverage data.
But what if some of the incentives are diametrically opposed—that is, what if they work directly against one another?
Try not to worry about that at first, Perez cautions, when I push on that question. For example, he says, if you do decide to go multipayer in your ACO strategy, there is tremendous overlap in areas such as breast cancer and colorectal screening. Those are no-brainers. But the overlap continues into other high-revenue areas, such as cancer treatment and diabetes.
"If you're going to really focus on something that has an impact, those are common across Medicare and commercial ACOs," Perez says. "Disease-focus areas are really very important."
Once you figure out your strategies and how incentives overlap, if you are considering developing a multipayer ACO, data is going to be critical. You need to have a performance management system, Perez says.
"You need to know how the entity is doing, because if you don't have midstream connections, you'll wake up at the end of the year and [you'll have] missed all these targets," he says, referencing the performance targets that commercial and government payers require ACOs to meet in order to share in financial rewards.
"You have these gainshares, but if you don't meet them, you're hosed," he says. "The way to dispel that is to put in place the machinery for the weekly or bi-monthly reporting on how you're doing."
The bottom line:
"You can't nail all 33 measures," says Perez, referencing the CMS ACO quality measures. "Focus on 10 or less, depending on their share of your business, and that have the most impact for your business."
Don't be schizophrenic—there rules are not massively different (between commercial and Medicare ACOs). Leverage your technology capabilities across the entire patient base. "Clinicians have to feel you're not schizophrenic," says Perez.
Focus on operational integrity and unity, because margin pressures are only going to increase.
That's the way to balance priorities and manage through the "two masters" problem.