Paul Keckley, executive director of Deloitte's Center for Health Solutions, discusses the physician’s role in the accountable care organization. Keckley shares his thoughts about this rapidly evolving team-based system of care with the PC physician at its center, and the important role technology will play. [Sponsored by Emdeon]
A health insurance premium tax credit that is part of the Patient Protection and Affordable Care Act could assist more than 28.6 million Americans in purchasing healthcare coverage by the time it's implemented in 2014. Sounds great, doesn't it?
It's not. This is a bad idea.
Let me back up. This is a good idea with an extremely bad mechanism, tax credits, for achieving its stated goals: helping middle-income Americans afford healthcare coverage.
Here's why I hate the way it's being administered. In an industry that many claim is economically out of whack, overburdened by regulation, and extraordinarily expensive, government is going to exacerbate the problem by hiding the true cost of healthcare through income tax credits.
Get this: the families being helped by this tax credit mechanism never actually see the money. The government and the (presumably private) health insurer take care of all the administration of the benefit.
That distorts behavior.
Before you argue that a lot of the rest of us are sheltered from the true cost of healthcare through our employer plans or through coverage under Medicare and Medicaid, yes, I agree. The way those plans are administered is a bad idea too. Sheltering people from the true costs of healthcare has played a large part in getting us to this crisis situation.
If we all had to pay for what it costs to insure us, I guarantee the rate of healthcare inflation wouldn't be double or triple the annual inflation rate for other goods and services. The value of the tax credits is expected to be about $110.1 billion during the first year. That's an amount equal to the GDP of Kyrgyzstan that will help hide the true cost of healthcare for many, if not most Americans with private health insurance.
There is no perfect solution to covering everyone's healthcare needs. We are where we are, but a better mechanism might be transferring the money directly to the people who need the help under our current system, and requiring them to have health insurance by installing an individual coverage mandate with actual teeth.
The tax credits will be provided on a sliding scale. For example, a four-person family purchasing a $15,000 family insurance plan in 2014 with $60,000 in annual income would receive tax relief of approximately $10,200. A similar family with annual income of $35,000 would receive tax relief of about $13,600.
So why not just write them a check from the Treasury to cover the shortfall? Then, people have the incentive to actually shop for a healthcare plan that works for them and pocket the difference, if there is any. Before you ridicule this approach, the current plan is not simply accounting paperwork. Treasury will still be issuing checks to someone, or something. Guess who?
Under my proposal, there still would be the problem of protecting people from dishonest health plans that give the impression of coverage but don't pay out when disaster strikes, but we have that problem now, and will likely still have it under the current tax credit plan. Besides, PPACA, in addition to covering the uninsured, was supposed to be about solving the systemic problem of healthcare cost inflation. In short, it won't.
And guess what else? Getting the federal government to sign off on 10% annual increases in healthcare cost inflation is much easier than getting savvy consumers to do the same thing. Makes you wonder whether they did all this with that cynical thought in mind, doesn't it?
We've shared the importance of clinical documentation for many years at HealthLeaders Media. But there's another side to it—coding integrity. Listen to my interview with Marion Kruse, a director with FTI Healthcare, about that long-neglected piece of the reimbursement puzzle.[Sponsored by FTI Healthcare]
It's been several months since the Patient Protection and Affordable Care Act, otherwise known as health reform, was passed by Congress. It was President Obama's key legislative achievement and was trumpeted from the halls as a new era in healthcare. Yet some of its key provisions, including the encouragement of healthcare providers to band together to improve the quality and continuity of care, seemed to directly conflict with the Federal Trade Commission's targeting of hospitals and health systems in antitrust actions.
The conflict was especially troubling if one entity wanted to own all these parts and pieces. Essentially, you had the government telling hospitals and health systems to band together on one hand, and threatening them with punishment for that action with the other hand.
I've talked to numerous CEOs about this issue in informal conversations since health reform legislation was passed, and none really had an answer for how this dichotomy might be addressed. They did, however, privately acknowledge it was a problem. Roughly six months later, we have our answer—and it's a big flip-flop from where we were only a month or so ago.
A couple of days ago, the FTC finally spoke. The upshot: They're looking for ways to relax its enforcement of antitrust actions against healthcare providers in order to facilitate the formation of so-called accountable care organizations. But what took so long? In a climate in which an industry already hidebound by regulation is facing such drastic changes—from structures of care to reimbursement—time is of the essence.
In case you hadn't noticed, the FTC has gotten quite good at undoing hospital and health system acquisitions that they deem anticompetitive—all while the nation's health insurers have gained enviable market clout through the same strategy, with little more than light regulatory pressure from the FTC to maintain competitive markets. Perhaps they were looking for the wrong bogeyman.
Insurers compete with each other to a degree, but they compete with hospitals and health systems more acutely. Except in the few cases where a hospital or health system has enough market clout to ensure higher reimbursement per patient, many standalone and small hospital systems are unable to break even under that reimbursement scheme.
In any case, the story, in which the FTC promised to waive certain antitrust laws if they hindered the creation of effective ACOs, was welcome news for hospital and health system leaders who are trying to figure out what services and employees to cobble together to form ACOs. Much of the reform legislation becomes real in 2014, but hospitals and health systems need as much lead time as possible to try to innovate through a maze of conflicting government regulatory relationships and federal turf battles. This is just one glaring example of many more that undoubtedly fly under the radar.
Although the announcement could be interpreted as the president calling off the dogs, it's a little more complicated than that. Look for new regulations (who knows when those will be out) that will provide a safe harbor, or several, so that doctors, hospitals and other medical professionals will know exactly how they are able to collaborate and how they are not.
But it won't be that simple. It never is when government regulations come into play. The agency further suggested it might develop an expedited review process for the ACOs that fall outside the safe harbors, whatever they may permit.
The rhetoric is welcome. The proof will come later.
Editor's note: This is only one potential regulatory landmine, but there are others. I'd be interested to hear about any you know of that need to be fixed so that the admirable goals of healthcare reform aren't ultimately undone by the rules of the game. The only way to get them changed is to shed light on them—the sooner the better. Please email me at the address below.
Let me start by stipulating that I know you have people on your staff who work on increasing philanthropy for your organization. Heck, even if you're the CEO, you might not even have direct managerial control over them, for example, if your institution's foundation is a separate operating entity from your hospital or health system. You should know that their jobs are tough right now. But do you know how tough?
The statistics are sobering, and the recession has much to do with it... Charitable giving for nonprofit healthcare institutions dropped 11% in 2009, the latest period for which figures are available, according to the Association for Healthcare Philanthropy. That compares to an overall charitable giving decrease in the U.S. in 2009 of only 3.6%, according to Giving USA, a report compiled annually by the American Association of Fundraising Counsel.
What does this mean?
AHP, as I mentioned, largely blames the recession for the steep drop, but that doesn't account for the 7.4 more percentage points that healthcare giving dropped compared to general giving in 2009.
I speculate that there are other reasons people are less willing to give to healthcare organizations these days. Perhaps one is that many healthcare donations are of the epic variety. By that I mean several million dollars given at one time to an organization to build a new building named after somebody—in other words, big donations for big projects. That makes charitable giving for healthcare a little more volatile.
Still, that's not all of it. I'd also speculate that healthcare giving is down because of the relentless villainization of the current healthcare system, politically. Compared to insurers, hospitals have largely been left out of the political blame game for annual healthcare price increases that routinely double the rate of inflation, but they haven't escaped unscathed. Hospitals generally have been called out for inefficient practices and for focusing on the wrong goals during the national healthcare debate we've been having now for the better part of two years.
Further, members of the general public have a tendency to lump all of "healthcare" together in the same way that "the banks" or "irresponsible borrowers" are blamed for the recession. Health insurance costs so much because of the greedy doctors, hospitals, and insurers, or so that line of unsophisticated thinking goes.
Whatever the reasons, the downturn in charitable giving for nonprofit healthcare institutions is alarming.
"This downward trend is a very serious problem in the U.S." said Gregory Pope in the AHP statement announcing the decline. The chair of the AHP board and vice president of philanthropy for Saint Thomas Health Services Foundation here in Nashville, says the downturn "comes just as some in Congress want to make it difficult for taxpayers to earn deductions for their donations, and as healthcare reform puts new pressure on nonprofit hospitals to serve more patients."
Are you listening CEOs? That's the message you need to get out there. Regardless of whether you think healthcare reform legislation is long overdue or a giant boondoggle, it's going to put a dent in your revenues over time, and you need potential donors to understand that.
Running a healthcare institution is about to get a lot more challenging, and in many cases there won't be a financial cushion to fall back on. As heads of the bully pulpit, that means CEOs have to do a better job of articulating the continuing need for more charitable giving to their institutions and identifying potential donors. It appears your peers in Canada have already gotten that message across. Despite the recession, giving from 2008-2009 actually increased there, by 5.2%.
It's time to make philanthropy a strategic imperative.
I wrote a story for HealthLeaders magazine's September issue about the ACO conundrum. It's an interesting window into how hospital and health system CEOs are running their ever-growing multifaceted organizations, and preparing for a future of greater accountability. Problem is, they're having a tough time, in many cases, translating what accountable care means to their bottom lines.
As you might imagine, it's sometimes difficult to get these people to wedge a media interview into their busy schedules, so inevitably, while I'm talking to these folks, I try to ask as many questions as I can in the time allotted, even if those questions don't necessarily relate to a specific story on which I'm working.
You might guess, correctly, that healthcare reform legislation offers myriad challenges about which these CEOs are uncertain. Sure, it's law, but regulators will be defining it for years to come, which means hospital CEOs are in a difficult place. What they think is coming in terms of reimbursement, patient demand, and endless other concerns, promises to provide a constantly shifting ground from which to make decisions that are long term in nature, expensive to implement, and represent a calculated gamble for these CEOs. Sometimes, they even ask me questions, even if they're rhetorical.
Here are a few I've heard in these conversations recently:
Q: What is an accountable care organization, and how can I construct one within my hospital or health system so we're not left behind?
A:Well, there are some demonstration projects, but beyond a basic framework, it's hard to tell what will work and what won't.
Q: Will sources of revenue that hospitals once depended on, such as disproportionate share funding and continuing medical education, be cut?
A:Probably. To what degree, no one knows.
Q: Will reimbursement per unit of service proceed on a downward slope as more people are insured by Medicaid, a notoriously poor payer?
A:There's little doubt about it. But how steep will that curve be?
Q: Will an influx of new, sicker patients overwhelm clinics and emergency departments?
A.: Probably. It happened in Massachusetts when the previously uninsured got coverage, and their uninsured level was much less than most states.
Q: How do you make smart investments in bricks and mortar that will serve everyone seeking care while not going broke in the process? Will government entities scale back their subsidies in the form of tax breaks?
A:Well?I'm out of answers. No one knows for sure.
And that's what struck me as I talked to these leaders about the impact of healthcare reform. If some of them are asking me these questions, they just don't know.
"It's fair to say we're not sure where to place our bets," says Gene Diamond, CEO of the Northern Indiana Region of Sisters of Saint Francis Health Services.
He's not the only one who's told me essentially the same thing. Yet decisions have to be made. In this case, best guesses. But I think organizations are holding back until the picture gets a little less murky. Yes, hospitals are still building, and they're still hiring, but they're doing these things based on what they do know. Many of them are already short of physicians or so-called physician extenders.
So they're hiring. Many already have overcrowded EDs, so they're working on patient throughput solutions, better handoffs between the hospital and the ED. But amid this flurry of activity, they're also sitting on their hands to some degree.
Writ large, this trend extends to other businesses, which clearly aren't hiring despite sitting on a record amount of cash. CEOs blame the Obama administration and its wave of regulation to the finance and healthcare industries, for the lack of hiring. They're not hiring, the thinking goes, because they don't know what it'll end up costing them if, say, a bureaucrat interprets one of the new financial or healthcare laws in a way that would dramatically increase their costs. That's a bit of a cop-out of course, but, as we all know, perception is reality. I might add a little corollary to that old marketing saw: Perception is even more real when the boss is perceiving it.
This month's cover story in HealthLeaders magazine is an interesting one. Yes, I wrote it, but you should read it anyway. It's interesting because I was stunned by how much simplicity there is in running a super-complex organization like a hospital or health system. At least that's what my self-deprecating sources would like you to think. I think it's much more complicated than they let on.
In fact, I know different. I can't think of a more uncertain time in the industry for people in those positions, and I know many of you, their peers, would agree with me. Yet they have faith that their management style and that surrounding themselves with talented people will be the broad strategy that will lead to ultimate success—defined by quality healthcare delivered to the community at a reasonable price, first of all, and also defined by a thriving nonprofit business. Yes, I said it. Healthcare is a business even if most healthcare organizations would prefer I didn't call it that. For them, calling it a business is based on what they feel is the public perception. Calling nonprofit healthcare a business is, for many healthcare executives, akin to violating Google's purported mantra, "don't be evil."
I get it. But if you can't run a successful business in nonprofit healthcare today, you'll soon be out of a job—and the community might be out of a hospital. That's how quickly things are changing as prices for healthcare zoom into the stratosphere and government tries to do something about it.
What I learned reporting this story is that to run a successful business, today's successful healthcare CEO can't do it by executive fiat. Thankfully, it's getting harder to find despot CEOs in healthcare anymore. He or she also can't do it by stifling innovation. Many of the most successful CEOs have people they trust in positions of delegated power. Today's top CEOs are less interested in how their deputies get it done than they are in getting it done. That means CEOs meet frequently with them to dial up strategic goals, and then they leave them alone to do the job the best way they see fit.
They also don't mind respectful disagreement. Steve Johnson, CEO of Susquehanna Health in Williamsport, PA, for example, values teamwork above all other attributes on his leadership team.
"What I'm looking for are individually talented people who have a strong experience background, but who are very good at working together," he says. "If I can't have someone with both, I'll default to a better team player."
That means finding a delicate balance of often-competing personality traits, he says. Team players can be short on the innovation front. High achievers can be impossible to work with.
"Are they candid with each other in constructive way? People who avoid conflict don't do well, and people who are lightning rods aren't solid either," he says.
So to me, that's the most important job of the CEO in healthcare these days. That is, hire talented people, and mostly, get out of the way, but know when to make that essential decision among lieutenants who may have disagreements. It's a fine balance. It's not for the timid, and it's not for the autocrats either.
If you ever played organized sports, you know what I mean. What's common about the CEOs I interviewed for this story is common among most good coaches. Their players will run through a wall for them not because of the many aspects of their life and work that the leader could potentially control, but because their leader stands behind them when they make a decision and they respect what he stands for.
We could use more people like this in healthcare, so I'm glad to see the good guys succeed.
The idea that Medical malpractice costs and defensive medicine are big reasons for higher healthcare costs has long been an attractive bogie for the physician lobby in this country. For as long as I have been covering healthcare (a decade), I've heard true story after true story from the physicians themselves who have had to leave their state because malpractice awards for their profession made malpractice rates too high or made malpractice insurance too unattainable for them to continue to practice there.
I've talked to hospital CEOs who have had trouble hiring or attracting the physicians they need to offer a full array of services because of malpractice premiums. But I'll admit, it's been awhile, which is one of the reasons I've been surprised at the frequency and volume of studies and press releases about this issue I've seen over the past couple of weeks.
Medical malpractice costs (and the defensive medicine they beget) remain a real problem, but not to the crippling degree they appeared to be several years ago. It's not a problem just because greedy, ambulance-chasing lawyers are filing frivolous lawsuits. That happens, sure, but hospitals and physicians sometimes get away with malpractice, too. That doesn't mean the whole system is broken. In fact, it's in a lot better shape than it used to be.
But the fact remains that hospitals and health systems have tackled challenges with high malpractice insurance premiums very aggressively over the years. A large percentage of hospitals are now self-insured for malpractice, greatly reducing the cost to themselves from profit-making companies that sell the insurance.
They make fewer serious errors too. Most hospitals have gotten the message that quality is important and are emphasizing it with data and zeal. Further, the size of the groups of physicians hospitals are able to insure helps smooth out some of the peaks and valleys so that specialties that see a high number of lawsuits (OBGYN, for example) don't have sky-high rates while those that don't get sued often have very low rates.
In fact, with the trend toward hospitals employing more of their physicians, malpractice insurance is often included in the price of doing business—the hospital effectively "pays" it for them through a captive plan.
Still, that didn't stop the American Medical Association from sending a pointed letter to Treasury Secretary Tim Geithner a week ago protesting a proposed change in federal tax policy that will allow a "special tax deduction for trial attorneys who enter into gross fee contingency contracts with their clients."
The AMA says allowing the deduction will reverse decades of precedent maintaining that court and other litigation expenses incurred by trial attorneys are not deductible as business expenses. Currently, attorneys are only able to deduct loans to clients on contingency cases after the case is lost.
The new rule would allow them to deduct the costs whether the case has been resolved or not. Democrats are heavily backed by trial attorneys, so I wouldn't be surprised if the AMA's letter is ignored. Besides, the administration doesn't have to ask Congress to do it.
Maybe the change would wreak havoc on the healthcare industry. It would be marginally cheaper, for example, for attorneys to file lawsuits—both of the frivolous and merited variety. But the bigger issue for policymakers and healthcare consumers, which is to say, everyone, is whether the double-bogeys of frivolous lawsuits and medical malpractice premiums get too much ink for the impact they have on the cost of healthcare in this country.
Understand, I'm not saying it's a good idea, just that I don't think it's going to move the needle much on healthcare lawsuits.
My colleague Cheryl Clark reports on a Harvard University study in the journal Health Affairs showing the price tag of malpractice liability and defensive medicine at $55.6 billion a year, or 2.4% of healthcare spending, far lower than the HHS estimate of between $70 billion and $126 billion.
I've always felt that a simple argument rings true for people on both sides of an issue. This issue is king of that maxim. On one side of the argument, greedy lawyers are seeking to exploit a physician's best efforts to heal his patient. On the other, greedy doctors are looking for ways to escape liability for the harm they've inflicted.
But it's really not that simple. In fact, it's a sideshow compared to some of the major changes that health reform legislation will inflict on the industry. Healthcare reform legislation, with its ban on making coverage decisions based on pre-existing conditions as well as other restrictions on private insurers regarding who will be able to get coverage (basically everyone) will likely move the needle much more significantly than anything tort related.
Many of the insurance industry practices that will now be outlawed are hated for good reason, but they arguably help keep costs down. Even with 2,000 pages of legislation being implemented over the next several years, I don't see a recipe for cost-containment on the immediate horizon. That doesn't mean, however, that we don't have to come up with one.
Bruce McPherson, CEO of the Alliance for Advancing Nonprofit Healthcare discusses tax exemptions for nonprofit hospitals and health facilities in light of healthcare reform legislation. [Sponsored by Emdeon]
Two hospitals in Monterey County, CA, about 60-70 miles south of San Francisco, knew they had a problem in late 2006. The county-owned public hospital, Natividad Medical Center, was hemorrhaging cash to the tune of $25 million that year. It had lost $15 million the year before, and the trend wasn't looking good.
As one of 15 public safety net hospitals in California, and the smallest, the 166-year-old, 172-bed hospital wasn't alone in losing money. In fact, in 2009, says Harry Weis, the CEO hired to take over back in 2006 to turn the place around, public hospitals in his state lost between $1.4 billion and $1.6 billion. But who's counting when the news is as bad as the apple I left in my car a little too long a few weeks back. That averages out to a loss of about $107 million per facility.
Natividad lost $3.7 million as recently as 2007. But it hasn't lost any since. In 2008, it made $10.5 million. In 2009, $7.6 million. And in fiscal year 2010, it made $10.5 million. How is this possible?
That brings us back to the two hospitals I mentioned earlier. Neither was Natividad. Instead, the two hospitals that helped solve the problem were the two other nonprofits in town, Community Hospital of the Monterey Peninsula and Salinas Valley Memorial Healthcare System. Essentially, the two competitors—CHOMP donated $4 million over two years and Salinas donated $6 million over three years—paid for significant turnaround efforts at Natividad. Again, why?
Well, they weren't doing it exclusively out of the goodness of their hearts, but Natividad faced a real possibility of closure if it couldn't get things turned around. The county, also one of the smallest in the state, couldn't stomach that type of annual loss. Natividad's competitors knew that if they lost the public hospital, they would take the annual hit for uncompensated care from the uninsured. In fact, they had explored the possibility of a merger with Salinas Valley, but the cash flow issue at Natividad was so uncertain, they couldn't be assured that they'd be able to absorb and turn around the facility, too. They just weren't sure it could be done.
In return for the donation, during the time the money was being disbursed, each donor got two seats on Natividad's board. Huron Consulting, now known as Wellspring Partners, was chosen to lead the turnaround. At a cost of $12 million, the consulting firm worked on the usual suspects. Revenue cycle was at the top of the list. And at the top of that initiative: Harry Weis, who was acting CFO at the time.
He and two colleagues from Huron completed a business plan in 2007 that outlined a journey of improvement for Natividad. Importantly, through that initiative, which covers everything from billing, to financial assistance teams for patients, to coding appropriately, Natividad realized a positive net cash flow even though the income statement showed a $3.7 million loss because it included depreciation.
"They had not had that positive net cash flow in any recollectable fiscal year," says Weis, who was appointed CEO in April 2009, when the consulting engagement ended.
Much of the rest of the turnaround came from canceling and renegotiating managed care contracts. "We lose money on Medi-Cal and Medicare and the uninsured," says Weis, echoing many other hospital leaders across the country. "But we were even losing money on the managed care PPO," he exclaims. "We had reverse philanthropy where we were subsidizing for-profit insurance companies!"
What's really amazing about the turnaround, however, is that it happened at all. Principals at the three hospitals spent about two years, Weis reckons, on obtaining permission from CMS that would permit the two hospitals to make the donation.
"CMS was not keen on that," Weis says. "But within about 10 days after Obama was sworn in, we received a letter from CMS that said that it was ok, and meets in essence our rules and regs. They permitted it."
Looks like it was a good decision.
Meanwhile, Natividad supports its county now, rather than the other way around, Weis says. It runs the county's medical indigent program, for which it is reimbursed to some degree, but "as a courtesy, we've capped the cash receipts we receive from them at $6.2 million and we lose about $4 million a year on that program, so that's a drag on our earnings and a way to give back," Weis says. In addition, it gave $750,000 in 2010 to the county health department, and will give $820,000 in 2011. It's also giving $280,000 for a senior in-home care program, and it won't receive a penny of the county's general fund, sales, or property tax.
Weis credits the forward-thinking leadership of his competitors for the key piece in the puzzle, however, insisting that his story shouldn't be unique—that other struggling public hospitals and their competitors should emulate it.
"They clearly recognized the critical role this facility provides," he says. "They did it first and foremost as the right and ethical thing to do. I'd like to see that kind of unselfish leadership continues to exist."