Better Hospital Discharges = Lower Healthcare Costs?
Photo by SeeMidTN.com via Flickr
[Ed. Note: We are pleased to welcome Jae W. Joo to HRW. Jae is a third year student at Seton Hall Law. He graduated from Rutgers College in 2006 with a B.A. in Psychology and a minor in Philosophy. In 2009, he interned for the Honorable Denise A. Cobham in the Superior Court of New Jersey. Currently, he is a summer intern at the New Jersey Attorney General's Tobacco and Securities Litigation Section, and also a research assistant for the Healthcare Compliance Certification Program at Seton Hall Law.]
With healthcare reform fresh out of the congressional oven, many changes are taking place in the field of healthcare and a myriad of new challenges will undoubtedly arise. However, one of the perpetual challenges in the midst of all these changes has been the substantial amount of money needed to fund Medicare. The Patient Protection Affordable Care Act is laden with economically efficient methods and plans to reduce costs. However, as Lesley Alderman suggests in her NY Times article, a drastic cost saving measure may be implemented with a simple change in hospital procedure.
According to the article,
[In] a study published last year in The New England Journal of Medicine, one in five Medicare patients returns to the hospital within 30 days of being discharged. The problem is an expensive one: in 2004 these readmissions cost Medicare $17.4 billion dollars, the researchers also found.
As the study shows, readmission within 30 days of discharge has been costly and remains a substantial contributing source to the Medicare deficit. However, discharge procedures rarely get the same level of attention as admission procedures to a hospital.
At discharge, the assumption is that the patient is better and all will be fine, said Dr. Eric A. Coleman, a geriatrician and professor of medicine at the University of Colorado Denver. But many patients, especially older ones, leave the hospital with a host of issues to manage. They may have additional medications to take, new symptoms to monitor and follow up appointments to keep, all of which require focused attention at a time when patients may not be at their sharpest.
What’s more, while insurers will pay for limited hospital stays, there’s no financial incentive for hospitals to insure that patients get and stay out. ‘A hospital may actually be financially rewarded for mishandled discharge,’ said Dr. Williams, chief of hospital medicine at Northwestern University. ‘If the patient is readmitted, they get paid again.’
While there may be a general lack of concern or awareness to improve conditions of patient discharge, Alderman’s article mentions some initiatives that have been taken to improve the discharge process. Care Transition Intervention is a hospital-based program that helps reduce readmissions by coaching older adults on how to manage their health and take better care. Project Boost provides hospitals guidelines to help standardize and enhance the discharge process. Federal Centers for Medicare and Medicaid has a program to improve hospital hand-offs for high risk patients and has also been developing a program to incentivize hospitals to lower their readmission rates.
Whether or not hospitals decide to implement new discharge protocols and procedures, individual patients can help alleviate the financial burdens placed on the system by taking an active role in managing their health. Alderman’s article points out a few tips to follow if a hospital does not have an up to date discharge procedure in place. Following these simple tips can, it seems, make a big difference.
Preliminary New Jersey Hospital Charity Care Budget Announced for FY 2011
The Good Samaritan (after Delacroix), Van Gogh, 1890
New Jersey’s Department of Health and Senior Services released its preliminary data on charity care dollars for hospitals for Fiscal Year 2011: $665 million. Fiscal Year 2010’s total budget for such was $660 million, but $25 million of that was cut as part of mid-year budget reductions. If one counts the restoration of the $25 million cut prior, the increase amounts to $85 million.
In a press release announcing the preliminary data, Health and Senior Services Commissioner Dr. Poonam Alaigh said, “This funding increase clearly demonstrates Gov. Chris Christie’s commitment to maintain and strengthen the health care safety net for New Jersey’s most vulnerable residents when they need it most. Despite the state’s current fiscal crisis, the Governor has made charity care a priority.”
Some of the gains were wrought through the leveraging of increased assessments against hospitals for increased federal matching funds. According to the Daily Record:
To get the extra cash, Christie proposes to lift a cap that had limited a tax paid by hospitals; doing so increases the amount of federal matching funds the state receives.
In other words: To get the extra funds into the hospital system, hospitals have to pay $38.7 million in extra assessments. That puts hospitals as a whole $21.3 million ahead of the game — although extra dollars don’t necessarily flow back to the hospitals paying more.
Also according to the Daily Record, the reconfiguration and redistribution will leave 41 hospitals with more money, and 32 with less. The chart below lays out those details.
Physician Income Relative to Hospital Revenue by Specialty
Filed under: Hospital Finances, Physician Compensation
Photo by Felix Nine via Flickr
Wandering through the pages of Health Law Prof Blog, I found this post from a few months ago which looked at a WSJ Health Blog article which examined net hospital revenue derived per physician and compared such revenue generation among various specialties. The average revenue generation per physician amounted to “about $1.54 million based on 114 U.S. hospitals responding to a survey by physician recruiters Merrit Hawkins…. (Revenue here means net inpatient and outpatient dollars derived from referrals, tests and procedures done in the hospital.)”
We’ve looked at physician compensation in relation to physician shortages here at HRW before, noting that “over the course of ten career years, if calculated at a constant rate without regard to future increases in compensation, the median paid “Family Doctor, Branch” will have earned $1,900,182. During those same static 10 years….If that same Family Doctor were to then consult with someone from the lowest paid of the three categories of Radiologist, Not neural, Non-Interventionist, she would be doing so with someone who had made $4,208,580 during that time–which would be $2,308,398 more than she–or more than twice as much.
But this chart below offers a slightly different perspective, showing relative hospital income to specialty and raises some interesting questions regarding hospital finances and chosen areas of focus in relation to return on investment. A focus on kidneys, for instance, would not, it seems, be favored. The ratio of hospital income to physician salary in Nephrology is 2.91 to 1. For Psychiatry it’s 6.45 to 1. For Hematology/Oncology it’s 4.33 to 1. Additionally, in actual income generated, Psychiatry brings in almost 2x as much as Nephrology; Hematology brings in over 2x as much.
One hears often about shortages in dialysis facilities, but mental health clinics and cancer centers barrage the airwaves with their advertisements. Perhaps it is not a coincidence.
Hospital Annual Revenue per Doctor by Specialty
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Hospital Bills, Insurers and Pricing
Filed under: 501(c)(3), Hospital Finances, Uninsured
A few weeks ago I wrote here about my unhappy experience of inadvertently mixing two different types of drain cleaners together. I learned then, and thought it useful to relate, a painful in-home science lesson: the combination of hydrochloric acid and hypochlorite (bleach) apparently forms chlorine gas, which was used as an agent of chemical warfare early in World War I. Serious lung damage and death are real possibilities. After a trip to the emergency room, a follow-up visit to my doctor and the passage of time– I’m ok.
But the other day I got the bill, or thankfully, as I am insured through my employer, the explanation of benefits. My present insurance company, CIGNA, detailed the claim in an easy to read and understandable manner. It is telling.
I was in the Emergency Room for about 4 hours (they had wanted to keep me overnight for observation but released me under the condition (and my pleading) that I return immediately if any number of things happened). I received oxygen and breathing treatments, x-rays, lab work, an electrocardiogram, and the care of a physician. The total billed was $2,270. But perhaps more importantly, the amount “discounted,” or the amount my insurance company did not pay through its negotiated pricing contract with the hospital, was $2007. Which is to say that my insurance company paid a total of only $263 of this bill. Thankfully, I owe nothing except a small co-pay.
The greatest single item of the billed amount is actually the charge for being in the Emergency Room itself. That charge, presumably triggered the moment I signed in, was $1,364.40. My insurance company, by agreement, paid only $158 of that charge.
But what if I weren’t insured?
Presumably, I would presently owe that hospital–which is a tax-exempt entity under 501(c)(3) with a concomitant mandate to deliver “community benefit” — a sum total of $2,270. This for services my insurance company paid a sum total of $263.
I understand robbing Peter to pay Paul, and quite frankly $263 seems a little cheap for the care and services I received (as $2,270 seems rather expensive). But if Peter is out of work and lacks insurance does it make sense to charge him 9x more than Paul? Does anyone wonder why uninsured Peter will do his best to avoid the hospital at almost any cost– even at great risk to his health?
I’ve written about this subject before. How seemingly no one except the uninsured pay “the chargemaster rate”; how many nonprofit hospitals in a recent IRS informational survey disclosed that they count the discounts they offer insurers and Medicare as “community benefit”; how even more nonprofit hospitals who bill greater amounts to the uninsured wind up counting the full amount billed, if collection efforts fail, as “a community benefit.” (e.g., if uninsured Peter above had received the care I received he would have been billed $2,270. If he failed to pay, not considering the harm to his credit record or the potential for being sued and a resultant judgment entered against him, the hospital then counts the unpaid $2,270 as “community benefit.”)
Thankfully, the reverse Robin Hood charging practice is about to change for at least some people. As Associate Dean Kathleen Boozang pointed out in her post last week, provisions in the new Health Reform law, PPACA, address the issue in part. Among other provisions aimed at tax exempt 501(c)(3) hospitals is the following:
Financial Assistance Policy. Hospitals must develop a financial assistance policy which enumerates a) eligibility criteria, b) an explanation of how hospital charges are calculated, c) the process for applying for financial assistance, and d) whether such assistance includes free or discounted care. If the hospital does not have a separate collections policy, the financial assistance policy must explain what happens if a hospital bill is not paid, including collections actions and reports to credit agencies. The financial assistance policy must be widely publicized throughout the entity’s service area.
Limitations on Patient Charges. Hospital charges for emergency or other medically necessary care provided to patients eligible for financial assistance may not exceed the lowest amounts charged to insured patients, and may not be based upon gross charges.
But of course, the Limitations on Patient Charges apply only to patients eligible for financial assistance, which may or may not apply to Peter who, if not eligible for financial assistance, may still be subjected to a $2,270 bill for services I paid $263 for. And seemingly, if Peter, ineligible for financial assistance, doesn’t pay that bill, hospitals are still able to claim as a “community benefit” the full amount of that non-payment of a bill 9x as high as an amount they were willing to accept for the same services from someone else.
In May of last year I wrote the following; it is worth considering again:
In recent posts we’ve pointed out some of the questionable characterizations of “community benefit” by nonprofit hospitals under 501(c)(3), a portion of the Internal Revenue Code which garners tax exemptions for those entities, such as nonprofit hospitals, which it harbors. In particular, we’ve focused on how matters such as “bad debt,” Medicare “shortfalls,” and even Private Insurer “shortfalls” have often been construed by nonprofit hospitals to constitute the conveyance of a community benefit. A “shortfall” may be deemed to have occurred when although the hospital receives the amount it had agreed to with a Private Insurer, or which was designated by the government through Medicare, that amount is less than the hospital’s “list price” for such services.
Despite this rather lax standard, Kaiser.org reports that an in-depth review by the Boston Globe determined that “the value of abundant tax exemptions extended to Massachusetts General Hospital, and other private non-profit hospitals, ‘far exceeds the amount the state’s leading hospitals spend on free care for the poor and other community benefits.’”
Kaiser reports that in Massachusetts
The ten biggest hospitals in the state benefited from $638 million in tax breaks in 2007, but reported only $265 million in “community benefits” provided that year, the Globe found.
Even if one accepts the questionable characterizations of community benefits, that still leaves an excess of $373 million in tax exemptions–for merely 10 hospitals–in only one state.
New Requirements for Tax-Exempt Hospitals in Health Reform Law
Filed under: 501(c)(3), Hospital Finances, Nonprofit Hospitals
I. New Requirements for Tax-Exempt Hospitals Embedded in PPACA
Sen. Grassley’s fingerprints are evident in the Patient Protection and Affordable Care Act (H.R. 3950). The Act includes in Section 9007 requirements to appear in new IRC §501(r), which applies to § 501(c)(3) charitable hospitals. Every hospital facility, including each hospital in a multi-hospital system must meet these requirements, which fall within the following categories:
Community Health Needs Assessment and Implementation Strategy. Hospitals must work with community representatives and experts in public health to develop community needs assessment made available to the public, as well as an implementation strategy. This section takes effect in tax years that begin after March 23, 2012. The hospital must include a description of how it is meeting the requirements of this section in its 990 filing. The Secretary of the Treasury is mandated to review a hospital’s community-benefit activities at least once every three years. IRC Section 4959 is amended to provide for a $50,000 fine for failure to meet the community health needs assessment provision of §501(r)(3).
Financial Assistance Policy. Hospitals must develop a financial assistance policy which enumerates a) eligibility criteria, b) an explanation of how hospital charges are calculated, c) the process for applying for financial assistance, and d) whether such assistance includes free or discounted care. If the hospital does not have a separate collections policy, the financial assistance policy must explain what happens if a hospital bill is not paid, including collections actions and reports to credit agencies. The financial assistance policy must be widely publicized throughout the entity’s service area.
Limitations on Patient Charges. Hospital charges for emergency or other medically necessary care provided to patients eligible for financial assistance may not exceed the lowest amounts charged to insured patients, and may not be based upon gross charges.
Limitations on Collections Policies. Collection actions may not be undertaken until the hospital has undertaken reasonable efforts to determine if the patient is eligible for financial assistance.
Finally, the PPACA requires hospitals for the first time to include their audited financial statements with the 990 filings.
II. IRS 990 Version 2.0
The new Informational Return 990 for tax exempt organizations continues to raise philosophical questions about the “federalization of nonprofit law,” particularly with its many questions about governance. As presumably intended by the IRS, its questions about the existence of particular policies such as whistle-blower, document retention, etc., inspired many tax-exempt organizations to create these policies. Many tax-exempt boards are actually seeing their entity’s 990 for the first time, again inspired by a question on the 990 itself.
The 990 for fiscal year 2009 reflects several changes, such as:
- Whether the entity follows the rebuttable-presumption-of-reasonableness procedure described in Reg. 53.4958-6(c);
- Whether the entity has made any significant changes to its program services or organizational documents.
Most important to hospitals is that the completion of Schedule H is mandatory for fiscal year 2009 (completion was optional last year). Questions include:
- Whether the organization uses Federal Poverty Guidelines (FPG) to determine eligibility for providing free or discounted care to low-income individuals;
- Whether the organization budgets for free or discounted care, and whether actual expenditures exceeded the budgeted amount;
- The amount of unreimbursed costs from government programs;
- Whether the organization has a written debt collection policy, and how patients are advised of financial-assistance programs for which they might be eligible;
- Whether the organization creates an annual community-benefit report which it provides to the public.
Industry Responds to Study Said to Demonstrate Link Between Physician Surgicenter Ownership and Volume of Surgeries
[Ed. note: We received the following response via email from the Ambulatory Surgery Center Advocacy Committee to Kate Greenwood's post, "Study Demonstrates Link Between Physician Surgicenter Ownership and Volume of Surgeries." In the interest of fairness, it appears below without comment.]
The Ambulatory Surgery Center Advocacy Committee Responds to Study Published
in Health Affairs
Industry Raises Concerns with Conclusions Drawn in New Study
Washington, D.C., April 7, 2010 - The Ambulatory Surgery Center Advocacy Committee (ASCAC), a group of leading ASC operators, state associations and the ASC Association, is compelled to respond to the incorrect assumptions made about the ASC industry put forth in a new study published in the April issue of Health Affairs. The ASCAC reinforces the important role that ASCs play in providing patients with access to convenient, high-quality care at a low cost to the health care system.
The study authors make inaccurate statements about the relationship between physician ownership of ASCs and higher surgical volume, inferring that physician owners are driven to refer patients to their facility by financial incentives. While the study authors recognize limitations with their methodology, the ASCAC is particularly concerned with their sole reliance on surgical volume as a proxy for ASC ownership. Volume is not a valid method for identifying which physicians have ownership interests in ASCs. In fact, many non-owners practice at ASCs.
Research identifies a number of positive factors that have increased the volume of surgical procedures in an ASC, including the migration of procedures and services from outpatient facilities to the less-costly ASC setting as well as patient preference and cost savings.
In 2009, KNG Health Consulting produced a report, which found that 70 percent of ASC volume growth between 2000 and 2007 was due to migration from hospitals to ASCs. It noted that for established specialties of ophthalmology and gastrointestinal (focused on in the study), the volume growth due to migration was 94 percent and 78 percent, respectively. Additionally, a larger and aging population as well as increased patient demand and medical innovation that allows for less-invasive procedures are also contributing factors for higher surgical volume in ASCs.
Patients often prefer the ASC setting for their convenient locations, ease of scheduling, shorter waiting times and faster recovery times. Patients report a 92 percent satisfaction rate after having a procedure in an ASC. Additionally, ASCs have fulfilled an important role in providing patients with access to vital preventive services, such as cancer screenings. For example, ASCs perform 40 percent of Medicare colonoscopies and the U.S. Healthy People 2010 objective to increase cancer screenings would not have been met without this expanded capacity for colon cancer screenings.
The study authors failed to recognize the significantly lower cost to patients and payors when identical procedures are performed in an ASC as opposed to the hospital outpatient department (HOPD). Research shows that Medicare patients save more than a 50 percent on out-of-pocket costs, and overall, ASCs save Medicare approximately 40 percent annually. By shifting just half of all eligible outpatient surgeries to the ASC setting, Medicare could save an additional $2.3 billion annually.
ASCs are staffed by a team of experienced medical professionals, including physicians, nurses, physician assistants and other health care experts. Data indicate that their focused expertise leads to efficient care and better patient outcomes when procedures are performed in an ASC, including low rates of medical error, infections and/or complications leading to readmission.
“With a staff of highly trained and certified medical professionals, physicians in ASCs can perform more surgeries with superior patient outcomes and low rates of medical error in our facilities,” said Brent W. Lambert, MD, FACS, Board Member of the Ambulatory Surgery Center Advocacy Committee and Founding Partner of the Ambulatory Surgical Centers of America, a physician-owned ASC development and management company. “ASCs are important providers of quality, patient-centered care and play an integral role in our country’s health care system.”
Many ASCs are privately owned by physicians, often in partnership with community hospitals or management companies. This structure enables proficient use of the facility, better control of scheduling and an environment conducive to the patient’s needs, as well as adaptable and innovative strategies for governance, leadership, efficiency and improved clinical care.
Data from the Centers for Disease Control and Prevention’s National Survey of Ambulatory Surgery show that ASCs are much more efficient than hospitals. Hospitals have also recognized that ASCs are effective partners in providing high-quality, patient-centered care, with approximately 20 percent of ASCs owned in part or exclusively by hospitals.
Higher volume in the ASC setting can also result from patient-referrals, another scenario the study did not consider.
“A significant number of new patients who ultimately need a surgical intervention are referred to our facilities from current or former patients satisfied with the care they received,” added Dr. Lambert.
The ASCAC and its partners are dedicated to working with physicians, hospitals, policymakers and other health care stakeholders to ensure that ASCs continue their commitment to excellence in quality and outcomes so that patients have the access they need to vital medical services procedures.
About the Ambulatory Surgery Center Advocacy Committee
Ambulatory Surgery Centers are health care facilitates that specialize in providing important surgical and preventive services in an outpatient setting. With approximately 5,200 Medicare-certified facilities throughout the country, ASCs perform more than 22 million surgeries per year. The Ambulatory Surgery Center Advocacy Committee is working on behalf of the industry to raise awareness of the important role that ASCs play in the health care system and the high-quality, cost-effective care that ASCs provide. The ASCAC includes the national and state ASC associations as well as representatives of all types of ASC operators and physicians. For more information about ASCs, visit www.advancingsurgicalcare.com.
Study Demonstrates Link Between Physician Surgicenter Ownership and Volume of Surgeries
Photo by Sarah McD via Flickr
There has long been a concern — reflected in the federal Stark Law and its state law analogues — that a conflict of interest arises when a physician refers patients to an ambulatory surgery center he or she owns. Prior research established that a doctor’s rate of referrals of patients for surgery and other hospital-based services is positively correlated with an ownership stake in a specialty hospital; now there is similarly concrete, empirical evidence of the deleterious effect of the conflict created when doctors own surgicenters.
In an article in the April issue of Health Affairs, John M. Hollingsworth and his co-authors present the results of a study comparing “the practice patterns of physician-owners of surgicenters, before and after they acquired ownership, to those of physician-nonowners over the same time period.” Using data from Florida for the years 2003-2005, the authors identified all patients who underwent one of five ambulatory procedures — carpal tunnel release, cataract excision, colonoscopy, knee arthroscopy, and ear tube surgery. The procedures were chosen because “substantial variation exists … in their use,” making them “susceptible to the influences of financial incentives associated with surgicenter ownership.” After accounting for differences in the populations served by physician-owners and physician-nonowners, the authors found that “the mean annual caseloads for owners … were at least twofold greater than those for nonowners.” Even more telling, using earlier data, from 1998-2000, the authors found that, even after accounting for the fact that some of the eventual owners had higher-volume practices before they invested in a surgicenter, for four of the five procedures studied, “acquisition of ownership status kicked owners’ already high volumes even higher.”
In an earlier post, I noted that a 2009 New Jersey law conditions physicians’ ability to refer patients to surgicenters on the following: (1) for patients they refer, they personally perform the surgery; (2) they be paid in proportion to their ownership interests, not the number of patients they refer; (3) they and their physician partners make all healthcare decisions, leaving non-physician partners without a say; and (4) they inform their patients in writing of their ownership interest at the time they make the referral.
The work done by Hollingsworth and his co-authors suggests that while the first and second conditions might eliminate certain especially troubling payment arrangements, a “relationship between surgicenter ownership and surgical volume” can persist even when physician-owners personally perform the surgeries. Similarly, while the third condition would require that physicians make healthcare decisions, it would do nothing to ensure that those decisions are uninfluenced by conflicts of interest. The fourth condition — which puts the burden on patients to suss out which referrals are medically necessary and which result from a physician-owner inappropriately lowering his or her threshold for intervention due to a financial conflict of interest — is also unlikely to reduce “physician-induced demand.” There is no evidence that patients are able to perform such a sifting function. To the contrary, existing evidence suggests that they are not.
Ultimately, as Hollingsworth and his co-authors suggest, the government may need to “intervene through physician reimbursement.” “[P]artial capitation or global payment schemes, or both, implemented in the context of proposed delivery system reforms (such as accountable care organizations) may be needed to discourage the over-use that fee-for-service payment rewards.”
Recording of Sam Maizel’s Discussion of Distressed Hospitals
A noted expert in the restructuring of health care business debts, both in and out of court, Sam Maizel treated Seton Hall to a one hour crash course on the fiscal crisis encountered by many of America’s hospitals. The significant financial hurdles that the hospital industry is facing has made the bankruptcy process that many hospitals encounter one of the fastest growing fields in health law.
Mr. Maizel has represented the federal government as a trial attorney in the U.S. Department of Justice’s Commercial Litigation Branch. He also served in the JAG Corps in Operation Desert Shield and Desert Storm after serving in the 101st Airborne Division and the 3rd US Infantry Regiment. Mr. Maizel now practices in Los Angeles for Pachulski Stang Ziehl & Jones LLP.
You can download Mr. Maizel’s talk here, or alternatively, you can stream it to your browser by clicking “Play” below:
Health Care Reform Law: Help for Hospitals?
Filed under: Health Reform Bill, Hospital Finances, Physician Compensation
Photo by James Jordan via Flickr
Last week, Samuel Maizel, a bankruptcy lawyer specializing in representing health care businesses in distress, gave a great talk here at Seton Hall Law on “Hospitals in Crisis: Debt Restructuring Options & Issues for Financial Survival.” Mr. Maizel painted a grim picture of the financial pressures facing hospitals and said he does not believe the situation is going to improve in the near term despite the overall economic recovery.
Near the end of his talk, Mr. Maizel told us that hospitals across the country are combing through the health reform legislation looking for anything that could improve their bottom lines. This piqued my interest and made me wonder what they will find. Using the House Committees’ summary of the provisions in the bill relating to delivery system reform as a guide, I came up with the following.
Sec. 3001. Rewarding High-Quality and Efficient Care.
This provision, which applies to patients discharged on or after October 1, 2012, establishes “value-based purchasing,” meaning that the government will make “value-based incentive payments” to hospitals that provide care to Medicare patients that meets or exceeds certain performance standards to be established by the Secretary of Health and Human Services. Initially the standards must relate to at least the following five conditions: heart attack, heart failure, pneumonia, surgery, and healthcare-associated infections. Eventually (by fiscal year 2014) the standards are to incorporate “efficiency measures,” that is Medicare spending per beneficiary must be a factor.
Sec. 3022. Medicare Shared Savings Program.
This provision, which Jordan Cohen analyzed at length here, directs the Secretary of Health and Human Services to establish a program by January 1, 2012 through which accountable care organizations that save Medicare money would be entitled to a cut of the savings they achieve. Hospitals are eligible to participate in the program through a partnership or joint venture arrangement with physicians or as employers of physicians.
Sec. 3023. National Pilot Program on Payment Bundling.
Under this 5-year long pilot program, which the Secretary must establish by January 1, 2013, the government will make one bundled payment “for integrated care during an episode of care provided to an applicable beneficiary around a hospitalization in order to improve the coordination, quality, and efficiency of health care services.” Episodes of care begin 3 days prior to hospitalization and end 30 days after discharge. Hospitals can apply to participate in the program (and/or submit a bid) as part of “[a]n entity comprised of … a hospital, a physician group, a skilled nursing facility, and a home health agency.”
While the above three provisions hold out hope of improvement to hospitals’ bottom lines, the House Committees’ summary also highlights two provisions which establish negative incentives. Section 3008 on Hospital Acquired Conditions provides that, beginning in fiscal year 2015, the government will cut by 1% the payments it makes to hospitals in the top quartile for hospital acquired conditions. Similarly, Section 3025, the Hospital Readmissions Reduction Program, provides that, after October 1, 2012, the government will begin reducing the amount it pays to hospitals with “excess readmissions.”
A Guide to Accountable Care Organizations, and Their Role in the Senate’s Health Reform Bill
Filed under: Cost Control, Hospital Finances, Physician Compensation
Photo by takomabibelot via Flickr
The accountable care organization has been a model for health care reform, yet its modest success has been limited to a handful of health care systems across the country. However, the accountable care organization model has recently taken on far greater significance since being introduced as one of Medicare’s pilot programs in the Senate’s health reform bill.
The phrase is attributed to Dr. Elliot Fisher of Dartmouth Medical School. Dr. Fisher has led the Dartmouth Atlas Project — a project that has, for the last 30 years, painstakingly documented the variation in care across the United States. (Click here for an interactive map of some of the Dartmouth Atlas results). The Dartmouth Atlas has focused on both the quality of health care as well as its cost. More importantly, they have reported on the relationship between the two, and their findings are nothing short of an indictment of our current paradigm.
Specifically, their findings illustrate that there exists wide variations in the cost of care across the country, and profoundly, that the regions that spend more per patient do not necessarily obtain better outcomes. So what to do? Dr. Fisher believes he has found at least part of the answer: the Accountable Care Organization, known as an “ACO”.
What is an ACO, and How Does it Differ from Other Payment Reforms?
In his paper “Creating Accountable Care Organizations: The Extended Hospital Medical Staff,” Dr. Fisher acknowledges that the term ACO “grew out of an exchange between he and Dr. Glenn Hackbarth at a MedPAC meeting in November of 2006″. (Fisher, 2006 n. 7). Dr. Fisher’s purpose in writing the aforementioned paper was to help identify the proper “locus for shared accountability” for a patient’s health care. HMO’s and other health insurers are obvious candidates, but as Dr. Fisher notes, HMOs only comprise a small percentage of the current market, and health plans in general have focused on negotiating favorable prices within relatively open networks of providers. (Fisher, 2006, p. 45). Read more
Obama’s Plan for a Health Care Summit and the Unenthusiastic Response
Filed under: Health Reform, Hospital Finances, Obama Administration, Uninsured
Last week, President Obama announced plans to hold a bipartisan health care summit to push forward on health care reform and to give both sides an opportunity to discuss ideas for health reform legislation that will be able to garner enough votes for passage. While President Obama and Democratic Congressional leaders want to use the health care proposals that have already passed in the House and in the Senate, Republicans say that they are unlikely to vote for a bill unless the current proposals are scrapped and the process is started afresh. It seems like Americans, once again, may be left watching the theatrics of the health care reform debate without actually being the focal point of it.
Some conservative Congress members have already responded to the President’s invitation publicly to make their steadfast positions known. Representative Eric Cantor (R-Va.) said this past week that he was not willing to discuss a “health reform package that spends money we don’t have.” He added that “House Republicans have offered the only plan that will lower health care costs.” If that is true, it is likely attributable to the fact that the House Republican bill would cover only 3 million uninsured Americans, compared to the Democratic House bill which would insure an additional 36 million Americans.
On Monday night, House Minority Leader John A. Boehner (R-Oh.) joined Cantor in submitting a letter to White House Chief of Staff, Rahm Emanuel, which said that the Republicans were not willing to come to the table unless certain prerequisite questions were answered. You can see the whole letter here. In the letter, Cantor and Boehner express their non-support for reform that the American people themselves are not supporting; the basis for such being the recent Republican Senate win in Massachusetts.
Exactly what are the citizens of American thinking about health care reform anyway? CNN reported on Tuesday that nearly two-thirds of Americans want Congress to persist in passing health care reform legislation. The poll, an ABC News/Washington Post survey, also indicates that Americans blame both Democrats and Republicans on their unwillingness to compromise. HHS Secretary Kathleen Sebelius herself is quoted as saying, “When people look up close at the personal activities of Congress they are confused and disgusted with the whole process and too afraid that whatever is going on can’t possibly be good for them or their families.”
Many believe that the idea for the health care summit was to address the back-door processes that led to American distrust and to make it all more transparent. Still, there appear to be more differences between the conservative version of reform and the liberal version than points of reconciliation. Though the prolonged tug-of-war between both sides does not seem like one that might be resolved in a day of convening, the summit is, perhaps, at least a start.
And, while the political contenders decide what to do about the summit, the health reform stalemate has presently-occurring repercussions. Many hospitals, which were holding on to the hope of reform, are now at the point where downsizing their health systems is thought to be the only step left. Hospitals all around the country have been seeing more and more uninsured patients, and with no one to cover the full cost of services, the hospitals providing unreimbursed care are said to be further sinking into debt– and must therefore cut staff as well as services. On the individual level, Americans are also finding it difficult to keep up with the costs of health care, and while many forgo insurance, those that cannot due to chronic illness or necessity of care are finding the cost further prohibitive.
It would make sense, then, that Americans do want reform. Andrew Rubin, Vice President for Medical Center Clinical Affairs for NYU Langone Medical Center and radio show host for HealthCare Connect, says that one of the underlying reasons why Americans are reluctant to give support for legislation is their lack of understanding of what is happening, not because they do not want to see change. Let’s hope that the proposed health care summit will be used to clarify issues for Americans who do need and want health care, instead of for just another political brouhaha.
Revisiting CONventional Wisdom on State Hospital Licensure
Photo by Christiaan Conover via Flickr
If there is one aspect of contemporary health care regulation that conservatives have decried, it’s “certificate of need laws.” These laws require licensure of new health facilities (and sometimes expansions of facilities) in thirty-seven states. Denounced as relics of socialist central planning, they were a prime target of the Bush-Era Dose of Competition report. But, as David Leonhardt notes, it appears that CON laws are reducing costs without impairing quality in some areas.
First, a bit of background. As health costs rose in the 1960s, many policymakers believed that a surplus of health services was to blame. Policymakers worried that health care costs were rising due to “induced demand:” the more doctors and hospitals there were, the more these actors would try to counteract the normal price-depressing effect of increased competition by finding more wrong with patients, thus “inducing” demand for their services. Although such a strategy could rarely work in a normal market, health care is a credence service—it is very hard for the average consumer to “second guess” his or her provider about the amount or nature of care needed.*
In 1974, Congress passed the National Health Planning and Resources Development Act. The Act required new health care facilities, and additions to existing facilities, to obtain a Certificate of Need (CON) from the appropriate state agency as a prerequisite to receiving federal funds via the Medicare and Medicaid programs. As a result of these laws, those opening new health care entities needed to demonstrate to state commissions that their services are actually needed by the community.
Over time, state boards started addressing concerns beyond “induced demand,” including social goals of equity and fair distribution of health resources. When I emailed a New Jersey policymaker who has worked in this area, he told me that the state would be unlikely to license specialty hospitals that concentrate on the most lucrative cases because they would threaten the ability of safety net hospitals to use revenue from such cases to cross-subsidize uncompensated care. He called such egalitarian concerns “explicit and leading factor[s] of discussion at all levels in CON proceedings.”
Leonhardt is more concerned about the classic CON goal of cost-control, and sees CON laws as a key reason for positive developments in Richmond, Virginia:
Since 1996, the Richmond area has lost more than 600 of its hospital beds, mostly because of state regulations on capacity. . . . Richmond has gotten rid of 15 percent of its hospital beds, and its health care still looks a lot like the rest of the country’s, only cheaper and a bit better. . . .
[Meanwhile, health facilities vastly expanded in South Dakota after it scrapped its CON law in 1988.] In other industries, all that new capacity might have led to a glut, in which workers and equipment sat idle. But health care is different. Doctors and patients tend to believe that more care is better, and patients often don’t pay much extra for any additional care. So new doctors, nurses and equipment generally stay busy.
Dr. John Wennberg of the Dartmouth Medical School refers to this phenomenon as supply-sensitive care. Dr. Marlon Priest, the chief medical officer of Bon Secours, puts it this way: “If you build 100 beds, they’ll get used.” . . . [But] [m]ore care is not always better care. Sometimes, in fact, it’s worse. Just consider the recent research showing that radiation from CT scans will eventually kill thousands of patients a year.
I’m not fully sold on the Dartmouth studies (here’s one critique of them), and I do worry that efforts to fight overtreatment will lead to some “meat ax” rationing that denies care to the poorest (rather than motivating those who don’t need the attention of the health care system to avoid it). But when cost saving initiatives are combined with a commitment to preserve access to necessary care for all, they may be as close to a “Pareto optimal” health policy as we can get.
*(Lawyers have their own version of this “induced demand” problem, encapsulated in the old saw: “When there was one lawyer in town, he had no business; when another moved in, he was swamped with cases.” I suppose laws against barratry offer a loose parallel to CON in the legal profession. Antitrust may stand in the way of legal and medical professionals’ own actions to avoid “induced demand.”)
X-Posted: Concurring Opinions.
Dollars and Sense & Health Care Reform
Filed under: Hospital Finances, Proposed Legislation
With health care reform approaching its culmination point, like all things most memorable of the past year, the overarching question remains, “How much will this cost us?” As it currently stands, the House version of health reform will cost an estimated $1 trillion over a decade, while the Senate version comes in at $871 billion. Next, comes the obvious second question, “How will the government pay for it?” As Kaiser Health News summarizes in its recently released guide to health reform:
Both bills hit up the wealthy, but in different ways. The House would impose a 5.4 percent income tax surtax on individuals who earn more than $500,000 a year and couples that earn more than $1 million. The Senate would increase the Medicare payroll tax rate from 1.45 percent to 2.35 percent for people who earn more than $200,000 a year and families that earn more than $250,000.
To raise money to pay for the legislation, the Senate would impose a 40 percent tax on the portion of most employer-sponsored health coverage that exceeds $8,500 a year for individuals and $23,000 for families. The Senate also would raise the threshold for deducting medical expenses to 10 percent of income, up from 7.5 percent.
Overall, the financing provisions could spur a pitched battle; the House hates the Senate tax on high-cost policies, while the Senate opposes the House’s income-tax surcharge.
In addition, many Americans worry that efforts to contain costs within the bills will lead to decreased standards of care. As a New York Times piece reveals, however, this may not be the case. The article examines the health system in Richmond, Virginia, where there are stringent state infrastructural expansion guidelines placed on health care practices and hospitals to contain costs. The state requires large medical infrastructural expenditures by health care providing institutions– in the form of hospital expansion or even major equipment purchases– to be approved by the state through a “certificate of need.” Neither of the House or Senate bills includes such a provision, but there is a great deal of speculation that the oversight and cost-cutting measures in both will have a deleterious impact on the quality of health care.
While Richmond spends less than average per capita on Medicare than other metropolitan areas, patient outcomes are better than average. The Times reports
The quality of care in Richmond is better than in most American metropolitan areas, according to various measures, and it continues to improve. Medicare data, for example, shows that Richmond hospitals do a better-than-average job of treating heart attacks, heart failure and pneumonia.
But perhaps the most interesting aspect of the Times’ analysis relates to those states that do not police their health care infrastructure expenditures– or, as in South Dakota, had done so formerly, but ceased to do so. When South Dakota “scrapped” its certificate of need program, one chief operating officer reported going on an expansion binge. In such cases, the number of patients that providers treat is said to correspond proportionally to the level of health care resources available. One medical officer found this “supply-sensitive” phenomenon to mean that the more hospital beds a hospital has, the more patients it is likely to see. Build it and they will come– or perhaps more to the point– they will be sent. At our expense.
Developments in the Law Governing Physician-Owned Ambulatory Surgery Centers in New Jersey
Filed under: Hospital Finances, Physician Compensation
Photo by rxb via Flickr
Over the past year, one or the other of my sons has had minor surgery in no less than three of New Jersey’s many ambulatory surgery centers (”ASCs”). So, I noted with interest the Appellate Division’s recent decision in Garcia v. Health Net in which it affirmed a lower court holding that physicians who make referrals to ASCs in which they have an ownership interest violate the Codey Law, New Jersey’s version of the Stark Law. The Appellate Division also affirmed the lower court’s decision that, despite the illegal referrals, the physician-owners in the case committed no fraud. They (along with other physicians-owners across the state) acted in reliance on the New Jersey Board of Medical Examiners’ conclusion that the Codey Law’s exception to the self-referral ban for services provided at the referring physician’s medical office applied to ASCs.
In response to the lower court’s holding and heavy lobbying from physicians, the New Jersey State Legislature enacted revisions to the Codey Law which were signed into law in March 2009. Physicians are now expressly permitted to refer patients to ASCs in which they have a financial interest if they meet a list of conditions, including that: (1) for patients they refer, they personally perform the surgery; (2) they be paid in proportion to their ownership interests, not the number of patients they refer; (3) they and their physician partners make all healthcare decisions, leaving non-physician partners without a say; and (4) they inform their patients in writing of their ownership interest at the time they make the referral.
On the other hand, the Legislature acted to all but put a stop to the establishment of new physician-owned ASCs, with the exception of those which are jointly owned by a general hospital. Development of hospital– and medical school–owned centers may proceed apace. Fox Rothschild’s Elizabeth Litten notes that this “resonates more of long-forgotten certificate of need and health planning policy than it does of the original law’s concern with physician profit motives and overutilization.” Clearly, the Legislature hopes that the new limits will be good for general hospitals’ financial health. Professor Frank Pasquale has written here and elsewhere about the concern that ASCs and other niche facilities harm general hospitals by “cherry-picking” lucrative patients and “lemon dropping” those that are more costly.
Photo by Mr. T in DC
What about patients? Should we care whether ASCs are physician-owned or not? Unsurprisingly, the American Medical Association believes that “physician ownership interests in health facilities, products or equipment can benefit patient care.” Peer-reviewed research suggests that physician-ownership makes no difference in health outcomes, however. And, as Dean Kathleen Boozang states here, there is evidence that “physicians who hold an equity interest in an entity that provides ancillary health care services, such as a clinical laboratory or MRI, more frequently order those services for their patients, referring them, unsurprisingly, to the entity they own,” although there is no evidence that “this higher use equated to over-utilization.” I would suggest, admittedly based on a small (and potentially unrepresentative) sample, that, if nothing else, physician-owned surgery centers have better amenities than those that are hospital-owned. Some of these amenities could easily be done without (orchids in the lobby, souvenir teddy bear); others (popsicles and DVDs in the recovery room) are potentially more significant.
Nonprofit Health Related CEO Compensation
Health Insurance Company CEOs in the U.S. earned tens of millions in 2008, but what about nonprofits? If you guessed that nonprofit CEOs are paid less than their private sector counterparts, you are right. But the numbers are no less shocking to the average American. Below are the highest paid nonprofit workers at the largest nonprofit healthcare organizations, hospitals and medical centers in the U.S, courtesy of the Chronicle of Philanthropy.
Last year, some of the top paid nonprofit workers took pay cuts while others saw increases in compensation. Despite a global recession, many health-related nonprofits reported higher income in 2008, according to the report by The Chronicle of Philanthropy, which surveyed compensation information from the top 400 charities and foundations in the U.S.
According to the Chronicle, it asked each organization to answer a questionnaire and provide its most recent 990 tax form. This year, not every organization provided the information. In fact, most of the top paid executives from 2007 did not provide the information in 2008.
Based on 2007 data, the highest paid nonprofit worker was Herbert Padres, chief office of New York-Presbyterian Hospital. Padres earned $6,170,885 in 2007. That’s $118,671 per week. In some parts of the country, that is enough to purchase a home. Every week. It is certainly enough to purchase one of the finest cars on the market.
As we’ve noted before on this blog:
Under the strictures of 501(c)(3) nonprofits are confined to paying executives “reasonable compensation” and supplying “community benefit.” Unfortunately, neither of these terms are particularly well defined. In [this] study’s executive summary, the IRS puts it so:
“The community benefit standard is the legal standard for determining whether a nonprofit hospital is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code.”
“Observations. Both the community benefit and reasonable compensation standards have proved difficult for the IRS to administer. Both involve application of imprecise legal standards to complex, varied and evolving fact patterns.”
The varied and evolving fact pattern of nonprofit executive compensation looks something like this:
The nonprofit healthcare CEO with the highest salary in 2008 (given the incomplete response) was James J. Mongan, CEO of Partners HealthCare Systems. Mongan earned $3,376,554 in 2008.
Nonprofit executive compensation, health-related nonprofit:
New York-Presbyterian Hospital Herbert Pardes (CEO): $6,170,885
Memorial Sloan-Kettering Cancer Center Harold Varmus (CEO): $3,677,402
Partners HealthCare System James J. Mongan (CEO): $3,376,554
New York Presbyterian Hospital Steven J. Corwin (COO): $3,127,051
Mount Sinai School of Medicine Samin Sharma (Professor of Medicine and Cardiology): $2,894,580
Note: Aside from James J. Mongan, all numbers are for the 2007. Compensation amounts include deferred compensation and fringe benefits.
See Health Insurance CEO Compensation Here.
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