Medicare Payment, a System in Need of Fixing
[Ed. Note: We are pleased to welcome Andy Braver, Esq. back to Health Reform Watch. Andy is a health care attorney who recently completed an LL.M in Health Law at Seton Hall Law. Prior to entering the LL.M. program, Andy spent five years as a healthcare provider, running a state of the art medical diagnostic imaging center. During that time, he dealt with many important health law issues faces by providers today, including Fraud and Abuse, Medicare and Medicaid licensing and reimbursement, state and private accreditation organizations, private payers, electronic health records, and HIPAA and other privacy issues, to name just a few.]
Medicare’s fee for service payment system has many problems that need fixing. While recent studies have predicted that Accountable Care Organizations (ACOs) may very well achieve better care and lower costs, any savings generated as a result of these new groups of providers will be just a drop in the bucket solution to a vast problem.
Medicare was projected to spend over $500 billion on patient care in 2010. Notwithstanding the fact that the White House Office of Management and Budget believes $36 billion of the Medicare and Medicare Advantage payments made in 2009 were improper.
The problem is, there is no distinction made for the provision of quality medical care. Conversely, there is no check in the system to make sure that the care provided is inadequate. If you provide the service, you get paid.
I realize that in many areas of medicine, it is difficult or even impossible to create a system to accurately and impartially judge the adequacy of care provided. How in fact do you measure the ‘quality’ of healthcare? Do you look at the structure of an entity, its organization and ability to provide what is generally regarded as good care? Or do you look at the actual process or provision care, measuring relative malpractice claims among other objective factors? Many believe that better outcomes suggest better care. While I do not believe that outcome or evidence based medicine is the answer to every problem, it certainly can be a solution to some of these challenges.
There are differences in the Medicare program based on geography, and local coverage determinations and reimbursement rates, whether using the PPS or RVU systems (Part A & B), vary greatly across the country. That part of the system makes sense by taking into account cost of living, cost of employment, property costs, and local tax rates.
In my mind, however, these processes fail because they do not further take into account advances in technology, or reward investment in the future. For example, Medicare pays the same amount of money for an MRI exam regardless of the type of machine that was used to take the picture, and without a thought given to the type of storage system employed by the medical provider. Imagine a facility with a two decade old system, state licensed and able to take pictures, with a machine equivalent to the first generation digital camera I owned 15 years ago, and printed pictures that are stored in a file room. Then imagine a state of the art facility with an HD camera taking high resolution digital pictures, stored in an electronic file system, in a format that is able to be sent electronically to specialists all around the country (or world), and accessed by the patient quickly and securely on the internet. Are those two pictures worth the same to Medicare? There certainly is increased value to the patient in the ‘new’ system. Better picture quality undoubtedly leads to better diagnostic capability (better medicine), and fewer picture redos over time; long-term storage and record portability is certainly going to lower future treatment costs if the issue is a chronic one. HITECH and the new EHR incentive programs recognize the importance of electronic medical records, but it remains to be seen how those requirements will affect licensing and reimbursement rates. Will there be a license ranking and a tiered payment system based on perceived quality or outcome?
I certainly hope that payments are tiered when advanced technology is used, but not according to self-assessment rankings and quality benchmarks. I would argue that medicine is the one area where any kind of ranking and result (or outcome) based assessment is virtually impossible. People are not cars, and JD Power cannot provide meaningful answers when it comes to medicine; there is no way to objectively determine a specific course of treatment for a particular patient is better at one hospital versus another. No two patients are the same, though it is entirely possible they might both drive the same car. Determining quality in healthcare is exceedingly difficult. Patient bases are different, whether because of socio-economic reasons, or geography. So do you then look to the education of the physician to determine quality? We don’t do the same for lawyers? Or do we? Do you look at healthcare structure (how an entity is organized, its equipment, etc…) to determine quality? Or process (the # of lawsuits against it, for example)? Better outcomes alone do not mean better healthcare, and none of these items taken alone should affect licensing of healthcare providers. In the end, this highlights the fact that designing a system that is fair and without major flaws may never be possible with so much money in the system and with so many parties having opposed interests. But that doesn’t mean we shouldn’t try to fix the expensive and broken (the status quo is unsustainable), it just means that attainable reform could very well mean significantly less unfairness and less major flaws. Because ultimately, in this context, the perfect may be the enemy of the good.
Investing in Time Banks: More than Just Feel-Good Potential
What distinguishes the time bank concept from established volunteer service organizations? Not much, really, since time banks — over 300 total in existence within 23 countries– allow individuals to join and indicate what service they would like to provide: ranging from home repairs, child care, visiting the incapacitated, and accompanying patients to the doctor. Anti-poverty activist Edgar Cahn, is often viewed as somewhat of a time bank pioneer; he wrote about the concept early, and has attributed the rise in time banks to the cuts in social programs during the Reagan years. The currency of time banks is, not surprisingly, measured in hours rather than dollars, and members may accumulate credits and use them on those services offered by other time bank members. The barter/exchange system is seemingly win-win, since individuals are able to provide services they feel comfortable providing, and may receive like-time in services they want. With time banks, all work is equally valued– as such, it is said to be deemed non-taxable barter.
While the social benefits and altruistic aspects of time banks can be clearly inferred, the health payoffs may not be as explicitly recognizable but are seemingly also present– perhaps evidenced by just how many time banks are sponsored by healthcare providers. According to the New York Times, “The largest one in New York City is the Visiting Nurse Service of New York Community Connections TimeBank.” Also according to the Times:
Elderplan, a New York health insurance company, also runs a time bank for members. Hospitals such as the Lehigh Valley Health Network, based in Allentown, Pa., run time banks. In Britain, even private medical practices have established time banks. At Rushey Green Group Practice in London, Dr. Richard Byng was convinced that what many of his patients needed wasn’t medication, but friends, social connections and a way to feel useful and valued. Now doctors there routinely prescribe that patients join the Rushey Green Time Bank.
Importantly, time banks often provide simple practical aid that may not be directly medical-related and might not be covered by Medicaid or Medicare: an elderly woman, for instance, who was just released from the hospital but is still too frail to purchase her own groceries or get to a follow-up appointment receives these services. These not directly medical challenges, if not navigated, can easily land such patients right back in the hospital. Importantly, re-hospitalizations are monetarily disincentivized through Medicare and Medicaid. As such, hospitals are seemingly incentivized to facilitate such simple ancillary care which can decrease the recurrence of re-hospitalizations and the lack of reimbursement for repeat hospital stays. Time banks may be one way to offer those solutions for many.
Time banks have been shown to make people feel better and improve members’ health– in particular, they have shown benefit for those with low-incomes and living alone. They are also, at least anecdotally, economically beneficial; but in order for more health care organizations and providers to actually invest in time banking efforts, quantitative data showing proven cuts in the cost of health care resulting from time bank initiatives is seemingly needed. But there is some. A briefing published by the New Economics Foundation (NEF) provided the following:
- Volunteer Caregiving in Richmond, Virginia, where asthmatics are enrolled in a telephone time bank and befriend other asthmatics: the experiment cut the cost of treating those involved by 73 per cent — a total of $80,000 saved in the first year of the asthma program, rising to $137,500 in the second year.
The Times also reports that
A study published by the Transportation Research Board, an organization funded largely by state and federal transportation agencies, found that providing rides to non-emergency medical appointments was cost effective for every condition studied - especially for asthma, pre-natal care, heart disease and diabetes. Regular visits from neighbors can also catch early signs of serious problems. One time bank, for example, asked people who worked with diabetics to pay special attention to early signs of glaucoma.
UK studies provide more evidence. In Britain, the Nu Social Health Organization (NUSHO) found a cost savings of £250,000 within its first year. An economic model by the London School of Economics (LSE) concluded that the cost of each time bank member would average £450 per year, but the economic value of each member’s contributions would exceed £1,300.
The relative lack of published quantitative evidence on the projected savings that time banks will create may have something to do with them not being yet widespread. But with the urgency our nation faces to cut health care costs, there is, seemingly, great potential in time banks. But as the Times writer noted, the evaluations of time banking perhaps need to focus more on monetary value outcomes so that the case for the economic impact of time banks can be more convincingly made. With this kind of information, if available, perhaps a push can be made and the potential of time banks can be effectuated.
Final Value-Based Purchasing Rule Released
On April 29, the Department for Health & Human Services (HHS) announced the launch of the Hospital Inpatient Value-Based Purchasing (Hospital VBP) program under the Medicare Inpatient Prospective Payment System (IPPS). According to HHS, the Hospital HVP program “marks the beginning of an historic change in how Medicare pays health care providers and facilities-for the first time, 3,500 hospitals across the country will be paid for inpatient acute care services based on care quality, not just the quantity of the services they provide.”
As a part of the launch of the Hospital VBP program, authorized under § 3001(a) of the Patient Protection and Accountable Care Act of 2010 (ACA, codified at 42 U.S.C. § 1886(o)), the Centers for Medicare & Medicaid Services published the final rule outlining the measures, performance standards, scoring methodology, and methodology for translating hospitals’ Total Performance Scores into value-based incentive payments.
Why Should I Care?
Value-based purchasing has been called a “fast-approaching, mandatory competition with millions of dollars on the line.” The program is aimed to fix two previously identified problems: (1) preventable medical errors and (2) resulting health care costs. According to CMS:
One in seven Medicare patients will experience some “adverse” event such as a preventable illness or injury while in the hospital. One in three Medicare beneficiaries who leave the hospital today will be back in the hospital within a month. Every year, as many as 98,000 Americans die from errors in hospital care.
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In addition to adding to the suffering of patients and their caregivers, these errors lead to significant unnecessary health care spending. Medicare spent an estimated $4.4 billion in 2009 to care for patients who had been harmed in the hospital, and readmissions cost Medicare another $26 billion.
The Hospital VBP program marks a shift in CMS reforms, from “pay-for-reporting” to “pay-for-performance.” In 2003, the Hospital Inpatient Quality Reporting (IQR) Program introduced the core-measures concept. Hospitals that did not successfully report data under the IQR program were penalized by a 2.0 percentage point reduction in their applicable percentage increase. The Hospital VBP program continues using payment incentives and takes the next logical step “in promoting higher quality care for Medicare beneficiaries and transforming Medicare into an active purchaser of quality health care for its beneficiaries.” The Hospital VBP program now directly ties payment amounts to a hospital’s performance score. CMS will begin measuring hospital performance for incentive payments this July.
To fund the Hospital VBP incentive program, CMS will reduce the base operating diagnosis-related group (DRG) payment by 1% in FY 2013 and increase withholding by 0.25% each year until it peaks at 2% in FY 2017. As a result, approximately $850 million will be allocated for the Hospital VBP program in FY 2013. Since overall Medicare spending for inpatient stays at acute care hospitals will remain constant, the new payment scheme will benefit some hospitals and hurt others. As the Hospitalist writes, “[i]t’s also a zero-sum game. That means there will be winners and losers, with the entire cost-neutral program funded by extracting money from the worst performers to financially reward the best.”
How It Works
As summarized by our very own Kate Greenwood:
Beginning in FY 2013 (October 1, 2012), hospitals will receive incentive payments “based on how well they perform on each measure or how much they improve their performance on each measure compared to their performance on the measure during a baseline performance period.” The final rule adopts twelve clinical process of care measures and one patient experience measure, the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey. These measures overlap or align with the Hospital Inpatient Quality Reporting (IQR) Program measures.
FY 2013 Objective Measures
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Acute Myocardial Infarction |
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| AMI-7a | Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival |
| AMI-8a | Primary PCI Received Within 90 Minutes of Hospital Arrival |
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Heart Failure |
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| HF-1 | Discharge Instructions |
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Pneumonia |
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| PN-3b | Blood Cultures Performed in the ED Prior to Initial Antibiotic Received in Hospital |
| PN-6 | Initial Antibiotic Selection for CAP in Immunocompetent Patient |
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Healthcare-associated Infections |
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| SCIP-Inf-1 | Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision |
| SCIP-Inf-2 | Prophylactic Antibiotic Selection for Surgical Patients |
| SCIP-Inf-3 | Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery End Time |
| SCIP-Inf-4 | Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose |
|
Surgical Care Improvement |
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| SCIP-Card-2 | Surgery Patients on a Beta Blocker Prior to Arrival That Received a Beta Blocker During the Perioperative Period |
| SCIP-VTE-1 | Surgery Patients with Recommended Venous Thromboembolism Prophylaxis Ordered |
| SCIP-VTE-2 | Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After Surgery |
In FY 2014, CMS will add thirteen more measures.
FY 2014 Objective Measures
|
Acute Myocardial Infarction |
|
| Mortality-30-AMI | Acute Myocardial Infarction (AMI) 30-day Mortality Rate |
| Mortality-30-HF | Heart Failure (HF) 30-day Mortality Rate |
| Mortality-30-PN | Pneumonia (PN) 30-Day Mortality Rate |
|
Hospital Acquired Condition Measures |
|
|
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Foreign Object Retained After Surgery |
| Air Embolism | |
| Blood Incompatibility | |
| Pressure Ulcer Stages III & IV | |
| Falls and Trauma: (Includes: Fracture, Dislocation, Intracranial Injury, Crushing Injury, Burn, Electric Shock) |
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| Vascular Catheter-Associated Infections | |
| Catheter-Associated Urinary Tract Infection (UTI) | |
| Manifestations of Poor Glycemic Control | |
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AHRQ Patient Safety Indicators (PSIs), |
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|
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Complication/patient safety for selected indicators (composite) |
| Mortality for selected medical conditions (composite) | |
Hospitals will be scored according to achievement (compared to all other hospitals) and improvement (over each hospital’s baseline) for each applicable measure. Achievement points will be awarded if the hospitals performance during the measurement period (quarterly) exceeds the 50th percentile of hospitals measured during the baseline period (the “threshold”). Improvement points will be awarded to the extent that a hospital’s current performance exceeds baseline period performance.
Baseline scores for improvement measurement have already been set, during the period from July 1, 2009 to June 30, 2010. The FY 2013 performance period for clinical process of care measures will be July 1, 2011 through March 31, 2012. July 1, 2011 will also mark the beginning of a 12-month performance period for the FY 2014 30-day mortality measures.
The Total Performance Score (TPS) is calculated “for each hospital by combining the greater of its achievement or improvement points on each measure to determine a score for each domain, multiplying each domain score by the proposed domain weight and adding the weighted scores together.” In 2013, clinical measures will account for 70% of a hospital’s performance score and the HCAHPS survey for 30%. Over time, scoring methodologies will be “weighted more heavily towards outcome, patient experience, and functional status measures.”
Future Changes
Moving forward, CMS will implement other ACA provisions designed to improve care and reduce costs. For instance, hospitals will begin receiving reduced payments in FY 2015 if they are unable to prevent certain hospital acquired infections or if the hospital fails to “meaningfully use information technology to communicate within the hospital to deliver better, safer, more coordinated care.” Check prior posts to learn more about HITECH’s “Meaningful Use” Rule.
The Normative Meets the Practical: Who Should Can Lead ACOs
Filed under: Accountable Care Organization, Hospital Finances, Physician Compensation
One of the many $64,000 questions in the accountable care organization (ACO) debate has been who should lead these organizations. In a policy adopted in November 2010, the American Medical Association (AMA) made clear its view that ACOs must be physician-led. The American Hospital Association (AHA) refrained (at least in its public letter to CMS) from asserting its entitlement to the ACO helm, based, for example, on its management experience and pools of capital. Instead, it simply urged CMS to “defer details of the organization, such as leadership and management structure, to each ACO.”
CMS seems to have heeded the AHA’s advice because its recently released proposed rule does not directly take on this normative debate. (See Summary of CMS Proposed Rule on Accountable Care Organizations recently posted by Jordan T. Cohen for an overview of the proposed rule.) While “ACO participants must have at least 75 percent control of the ACO’s governing body” to be eligible for participation in the Shared Savings Program (proposed Section 425.5(d)(8)), the definition of “ACO participant” in the proposed rule includes physicians and hospitals, among others (proposed Section 425.4).
V. Van Gogh, "Corridor in the Asylum" (1889)
Similarly, the proposed rule simply requires that the “ACO’s operations must be managed by an executive, officer, manager, or general partner whose appointment and removal are under the control of the organization’s governing body and whose leadership team has demonstrated the ability to influence or direct clinical practice to improve efficiency processes and outcomes” (proposed Section 425.5(9)(ii)). The proposed rule does not address who or what would make the best such leader.
The proposed rule, however, clearly preserves a role for physicians to form and lead ACOs. For example, it recognizes that ACOs may be comprised of professionals in group practice arrangements and networks of individual practices, independent of hospitals (proposed Section 425.5(b)).
In addition, “[c]linical management and oversight [of the ACO] must be managed by a full-time senior-level medical director . . . who is a board-certified physician . . .,” and “[a] physician-directed quality assurance and process improvement committee must oversee an ongoing action-oriented quality assurance and improvement program” (proposed Sections 425.5(9)(iii) and (iv)).
The proposed rule also builds in a preference for ACOs comprised of all physicians or physician groups with fewer than 10,000 assigned beneficiaries by proposing to exempt them from the 2 percent net savings threshold adjustment under the one-sided model (proposed Section 425.9(c)(4)(i)). It also proposes to vary confidence intervals, which affect the minimum savings rate, by the size of the ACO in the one-sided model “to improve the opportunity for groups of solo and small practices to participate in the Shared Savings Program” (Preamble to proposed rule at Section II.F.10).
But on a practical level, the specifics of CMS’ proposal may — unintentionally, perhaps — give hospitals the greater chance to take the reins, at least initially. An apparently leaked CMS internal discussion document reflects some level of concern that physicians may have a hard time taking the lead with ACOs.
The proposed rule’s regulatory impact analysis estimates that the average start-up investment and first year operating expenditures for an ACO in the Shared Savings Program will be $1,755,251. In addition, the proposed rule uses a 6-months claims run-out (proposed Section 425.7(a)). Presumably, that means ACOs — assuming they satisfy all program requirements — will not see a dime of shared savings for more than eighteen months. CMS also proposes to withhold 25 percent of any earned shared savings accrued in a given year to ensure repayment of any losses to the Medicare program in subsequent years of the three-year ACO agreement (proposed Section 425.5(d)(6)(iii)).
Even if private physicians can amass the capital to make these upfront investments, there of course is no guarantee they will regain their outlays. A recent study published online by the New England Journal of Medicine, as reported by the American Medical Association, found that participants in CMS’ Physician Group Practice Demonstration did not recoup, at least in the initial years of the demonstration, all of the money they invested to establish ACOs. As the AMA summarized:
Early adopters, for the most part, did not recoup their set-up costs in the first three years of operation. The 10 integrated health systems that were studied spent an average of $1.7 million to take part in the demonstration project. Eight received no shared savings payments in the first year of the project. Six got a payment in the second year, and five received a bonus in the third year.
The Everett Clinic in Washington, for example, reportedly spent approximately $1 million on infrastructure for its ACO but recouped only $129,268 in shared savings during the first four years of the demonstration project.
The Doctor Luke Fildes, Samuel Luke Fildes (1843-1927)
According to a 2007 report from the National Center for Health Statistics (NCHS), in 2003-04, 80.6 percent of office-based medical practices in the United States consisted of one or two practitioners and 94.8 percent had five or fewer practitioners. The risks associated with forming an ACO are considerable for these smaller practices to absorb, especially when, at best, the ACO will see 75 percent of its portion of any shared savings upwards of eighteen months down the road and could instead be responsible for its share of losses. It is not clear how many small practices are willing and able to assume these risks without some substantial financial or management support. Not surprisingly, the AMA’s statement on the proposed ACO rule specifically identifies “the large capital requirements to fund an ACO” as a significant barrier that must be addressed if physicians in all practice sizes and settings will be able to successfully lead and participate in ACOs.
Another aspect of the proposed rule that may present a particular challenge to independent physicians is proposed Section 425.11(b)’s requirement that “[a]t least 50 percent of an ACO’s primary care physicians must be meaningful [Electronic Health Records (EHR)] users, using certified EHR technology as defined in §495.4, in the [Health Information Technology for Economic and Clinical Health (HITECH)] Act and subsequent Medicare regulations by the start of the second performance year in order to continue participating in the Shared Savings Program.”
Personal Robot Pictogram, Tradelpus
Physician practices indisputably have increased their use of EHR systems in recent years. According to the National Ambulatory Medical Care Survey conducted by NCHS (reported here), only 17 percent of physicians in 2008 reported that they had a “basic” EHR system (which is defined as having electronic patient demographic information, patient problem lists, patient medication lists, clinical notes, orders for prescriptions, and laboratory and imaging results). Recent NCHS data (reported here) show that that number has climbed nearly 50 percent to 24.9 percent of office-based physicians.
But basic use of EHRs is not sufficient under the proposed rule, which requires “meaningful use.” Survey data from the Office of the National Coordinator for Health Information Technology, as reported here, show that only 41.1 percent of office-based physicians plan to apply for billions of federal dollars in EHR incentive payments that are available to Medicare and Medicaid providers under the HITECH Act, compared with 80.8 percent of acute care non-federal hospitals. Additionally, as reported here, a recent survey from the Medical Group Management Association (MGMA) found that only 13.6 percent of medical practices that have adopted EHRs and plan to apply for the EHR Meaningful Use incentives currently are able to satisfy the fifteen core criteria necessary to establish that they are meaningful users. Medical practices have a long row to hoe.
But the news is not all bad for physicians. The MGMA survey also found something that suggests this issue is far from resolved on a theoretical or practical level. As reported here, “almost 20 percent of responding independent medical practices that owned EHRs said that they had optimized their uses of EHRs” whereas “[o]nly 8.8 percent of responding hospitals — or [integrated delivery system (IDS)] — owned practices with EHRs said they had optimized their EHR use.”
Almost certainly, it is not just a coincidence that physicians are devoting their energy to becoming meaningful EHR users just as the first EHR Meaningful Use incentive payments are available. If CMS or private foundations develop additional incentive programs to help smaller practices cover the start-up costs associated with forming an ACO, the individual physician could still be in this game. Notably, the AMA’s brief statement on the proposed ACO rule reiterates its recommendation to CMS to increase access to loans and grants for small practices as part of this puzzle. It remains to be seen if any such programs are viable in this fiscal climate.
As promised, future posts will address the normative question of who should lead ACOs.
Dialysis and the Problem of Unintended Consequences
A recent New York Times article by Gina Kolata highlighted the debate surrounding dialysis as an end-of-life treatment. In reading the article and surfing the internet for counter-arguments, I found two points of interest.
Background
According to the Medicare ESRD Network Organizations Manual, Section 299I of the Social Security Amendments of 1972, Pub. Law 92-603, which “created the National End Stage Renal Disease (ESRD) Program … [and] extended Medicare coverage to individuals with ESRD who require either dialysis or transplantation to maintain life.” In addition, depending on your perspective, Sec. 299I requires/limits the entitlements for/to individuals under the age of 65 who have insurance coverage (remember this age and insurance coverage part — it will be important later in the discussion).
By the time the legislation was adopted in 1972, only 10,000 individuals were being dialyzed in the country and only 20,000 to 25,000 were considered candidates for the procedure. Section 299I was estimated to cost $250 million over the first four years. Now, according to the N.Y. Times, about 400,000 people will undergo dialysis at an estimated cost of $40 billion to $50 billion in this year alone.
Has the entitlement had the unintended consequence of benefiting those over 65?
Kolata argues that this law was intended “to keep young and middle-aged people alive and productive” and has had the unintended consequence of financing dialysis treatment for (primarily elderly) individuals who are too sick to benefit from the treatment. She explains:
When Congress established the entitlement to pay for kidney patients in October 1972… [Congress expected] that most of those patients would be healthy — except for their failed kidneys — and under age 54.
Now… More than a third of the patients are 65 or older, and they account for about 42 percent of the costs. People over 75 make up the fastest-growing group of dialysis patients. And most elderly dialysis patients have other serious diseases like diabetes, heart failure, stroke and even advanced dementia. One-third of them have four or more chronic conditions.
Others, however, would argue that Sec. 299I has not benefited the elderly because they were already entitled to Medicare coverage prior to its enactment. In the “Dialysis from the sharp end of the needle” blog, Bill Peckham writes in response to Kolata’s argument:
No no no. Dialyzors who are “old and have other medical problems” have access to Medicare due to age or disability, “patients who take advantage of the law” are few: only about 25,000 people [out of about 417,000] have access to Medicare as a consequence of Section 299I of the Social Security Amendments of 1972.
Well… According to Kaiser, the source of Peckham’s figures, only 5.8% of Medicare enrollees with ESRD directly benefit from Section 299I. But what about indirect benefits? A comprehensive history of Section 299I can be found in Origins of the Medicare Kidney Disease Entitlement: The Social Security Amendments of 1972, a chapter in Biomedical Politics. Richard A. Rettig writes:
It was presumed that the benefit existed for the elderly, however, because a Medicare benefit could not be established for those under 65 and not be available for the elderly. In fact, very few elderly persons were being dialized at the time and none were receiving transplants. Although the Bureau of Health Insurance had answered several inquiries in the previous year, the nature and extent of coverage for the elderly had not been clarified.
The entitlement for those under the age of 65 extends from the third month after “a course of renal dialysis is initiated” until a year after the person has a renal transplant or ends the course of dialysis. This section could have been read to provide an entitlement to dialysis and renal transplant solely to those under the age of 65, or it could be interpreted to create a near universal entitlement to such treatments.
It seems that President Nixon’s administration read Section 299I according the latter interpretation, because in his statement on the Signing of the Social Security Amendment of 1972 Nixon said, “it extends Medicare coverage for kidney transplants and renal dialysis.”
Aggressive Treatment and End of Life Care
“Clearly, when the program was initiated in the 1970s, the hope and expectation was that this program would return otherwise healthy people back into society so they could work and be productive,” said Dr. Manjula Kurella Tamura, a kidney specialist at Stanford. But, she added, “dialysis at the end of life is a different sort of treatment.”
A second important aspect of the article is its focus on end-of-life care. Even Peckham concedes that, “caring for the elderly is expensive and aggressive treatment may not always be in the interest of the ill. That is a serious discussion our electorate should have but has not been able to have.”
The article highlights new clinical practice guidelines produced by the Renal Physicians Association designed to promote, through shared decision-making and informed consent, “medical management without dialysis.” Particularly concerning is that the provision of dialysis gives patients false hope of survival. According to the NY Times:
Recent studies have found that dialysis does not prolong life for many elderly people with other serious chronic illnesses. One study found that the procedure’s main effect is to increase the chances that such patients will die in the hospital rather than at home.
Yet, a 78-year-old woman is quoted as saying, “I go to dialysis because I want to live. I want dialysis.” Although he doctors explained that dialysis would not necessarily prolong her life, she chose aggressive treatment because, “Some life is better than no life.” This anecdotal story raises a HUGE informed consent problem because it appears that the patient may not have understood the risks and benefits of undergoing dialysis.
Key to the decision to forego, commence, or withdraw dialysis is a properly informed consent. The above guidelines state that certain patients, including those age 75 years and older, those with high comorbidity scores, those with marked functional impairment, or those with severe chronic malnutrition, “should be informed that dialysis may not confer a survival advantage or improve functional status over medical management without dialysis and that dialysis entails significant burdens that may detract from their quality of life.”
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The ESRD program has provided life-saving dialysis to many people. However, as with many other tests and treatments performed in the last year of life, it is important to ensure that patients (or their legal decision-makers) are properly informed about the risks and benefits of all options, including palliative care, at the end of life.
Short Circuited Surge Capacity: Lessons from the Blizzard for Public Health
Filed under: Economic Analysis of Health, Hospital Finances, Primary Physician Shortage, Productivity, Public Health
Bad weather recently caused massive failures at Heathrow Airport, and brought chaos to air travel in the New York area. Both scenarios suggest an intriguing set of dilemmas in health law and policy. We should be doing much more to prepare for sudden, disruptive events in both the transportation and health sectors. But economic short-termism rules the roost, undercutting the infrastructural investments that a more enlightened America would make.
Stuart Altman has wisely compared hospitals and airlines, and worried that many of the former would suffer the fate of legacy carriers:
By 2025 the need for general hospitals to cross-subsidize [i.e., use payments from the well-insured to pay for others' care] will greatly increase, but their ability to do so will be diminished. U.S. hospitals could begin to resemble U.S. airlines: severely cutting costs, eliminating services, and suffering financial instability. . . .
There are numerous similarities between the airline and hospital industries. Both comprise companies that built a complex infrastructure and provided cross-subsidized services. Both were protected by a lack of price transparency and limited competition. In the recently deregulated airline industry, price competition and specialized airlines have emerged that do not have to serve all cities and can focus on the most profitable routes. They need not charge higher prices for these routes to make up for losses incurred elsewhere. Similarly, in the hospital industry, specialty hospitals have emerged that can focus on the most profitable patients and do not have to treat the uninsured or provide money-losing services.
The new specialty hospitals, like the new low-cost carriers, are not saddled with fixed costs from old plant and equipment and do not have to contend with excess capacity that resulted from historical changes in demand.* Both use their inherent cost advantages to compete for more price-sensitive consumers. Legacy airlines cannot raise fares to cover costs because price-sensitive customers can now obtain transparent price information on the Internet and shop for the lowest fares. California is now requiring, and many advocacy organizations are encouraging, hospitals to post their prices on the Internet. Hospital patients, facing increased copayments, deductibles, and other out-of-pocket costs, could begin to behave more like airline passengers. . . .
Because of increased price transparency and specialized competition, legacy airlines could not raise prices sufficiently to cover their costs. Between 1 October 2001 and 31 December 2003, they cut costs by $12.1 billion. They stopped serving some locales and reduced seat capacity. They cut labor costs, services, and amenities. Nevertheless, from 2001 through 2003, the legacy airlines lost $24.3 billion, while the low-cost carriers reported profits of $1.3 billion.
The past few years have witnessed a recovery for many airlines pushed to the brink after 9/11. They filled more seats in each plane (leading to higher “load factors”) and otherwise “cut the fat” (sometimes endangering passengers in the process). Nate Silver observes that filling up planes has some positive effects on prices and the environment, but also sets in motion dynamics that few fully consider until the unexpected strikes:
[L]oad factors have been rising steadily. A decade ago, they were closer to 70 percent, which permitted quite a bit more slack in the event of cancellations. At a 70 percent load factor, there are 2.3 passengers for every available seat, which means, roughly speaking, that one day’s worth of cancellations might take two days to clear through the system. At an 82 percent load factor, on the other hand, there are 4.6 passengers for every seat — roughly twice as many — so one day’s worth of cancellations might require four or five days to get everyone home.
The societal trade-offs here are tough, and airlines need flexibility in determining how far they should go to crowd planes and maximize profits. But in the realm of healthcare, I am much more concerned that a long series of hospital closures will leave the system disastrously overwhelmed in case of an infectious disease outbreak, terrorist attack, or extreme weather event. Like airlines, hospitals have been cutting their surge capacity in order to improve the bottom line. As I noted over four years ago, the asymmetry between projected demand and supply for something as fundamental as ventilators is shocking. A 2006 estimate suggested that only 5,000 spare ventilators would be available to as many as 742,500 people in need in the case of a serious pandemic.
In a 2005 article in the Journal of Contemporary Health Law and Policy, Lance Gable et al. discuss surge capacity as “the number of critical casualties arriving per unit of time that can be managed without compromising the level of care,” and propose ways of increasing “the availability of skilled health professionals to supplement the existing health workforce.” I applaud their approach and attention to the problem (astonishingly, it is the only article in the Westlaw JLR database with “surge capacity” in the title). But I also worry that scarce physical space is going to cause as large a problem at hospitals as personnel shortages. Like its airports, New York’s community hospitals are fraying:
In New York’s many community hospitals, which provide an essential first line of defense in the effort to safeguard public health, the danger of failure is particularly acute. Combine growing costs, decreasing revenues, and high debt loads, and you can’t dig out. Then what happens? “If you’ve accumulated any reserve over time,” an executive at a major local hospital says, “the first thing you do is eat it up. Then you cut costs on staffing and support services, sometimes below levels you know are safe. Then you stop spending money to keep your physical plant and equipment up to date. The condition of the physical plants of many New York City hospitals is staggering. Then, when there’s nothing else you can do, you declare bankruptcy. That’s the life cycle of a New York hospital.”
Given all these strains, hospitals may have to choose between community service and solvency in the wake of a major outbreak of illness. Vickie J. Williams’s article “Fluconomics” presciently examined the bad financial incentives that hospitals would face in case of a serious outbreak of infectious disease:
[W]e currently have no means of ensuring that hospitals acting as isolation, quarantine, and treatment centers in a pandemic will survive the loss of revenue that they will experience in protecting the public’s health. Our hospitals depend on a fragmented financing system that presumes the hospital’s ability to shift costs from low-paying public payors to higher-paying private payors, and from less lucrative cases to more lucrative, often elective, procedures.
Michael Millenson on Medical Error and “Letting Children Die Unneccesarily”
Sometimes misery neither loves, nor is especially reassured by, company. Acclaimed author and president of Health Quality Advisors LLC, Michael Millenson, recently published an article over at Health Affairs and The Health Care blog well worth considering. It’s entitled “Why We Still Kill Patients.” And no, that’s not a question.
Gabriel Metsu, The Sick Child (1660-1665)
My recent articles examining the Medicare “errors contributing to death” (at a rate of 180,000 per year according to the Inspector General of the Department of Health and Human Services, Daniel R. Levinson), and my personal experience lately and prior (Thanksgiving & Medical Malpractice), have left me less than sanguine with regard to the doctor’s art as practiced in hospitals. Granted, I wasn’t particularly sanguine before– having long held the view that before we talk about malpractice reform, perhaps we could get hospital employees to at least wash their hands.
But there’s something even more disturbing about Millenson’s article. I’ll let this portion speak for itself– though the benefit analysis of “complications” which follows is, in its own right, equally disturbing. Millenson writes:
Letting Children Die Unnecessarily
There are many examples of the inertia these beliefs produce, but one I cannot get out of my mind concerns sick children. At the 2009 AcademyHealth meeting, Dr. Richard Brilli of Nationwide Children’s Hospital presented data showing how a collaborative backed by some of the most respected organizations in pediatric care had slashed the rate of catheter-associated bloodstream infections (CA-BSIs). CA-BSIs are relatively common, very expensive and can be quite deadly (up to one quarter of victims die). Brilli said his collaborative had tried to recruit 330 pediatric intensive care units to join the initial participants, but after three years, just sixty had accepted. The reasons Brilli said he’s been given indicated to me that few had taken the time to examine the collaborative’s methodology or results. Instead, respondents asserted that their patients were sicker, their hospital was busier than the others in the study, that joining would make them look bad to others, or that the mortality reduction didn’t apply because “I am in a world famous center.”
Now fast-forward to the February, 2010 issue [10] of Pediatrics, in which the collaborative concluded: “CA-BSIs are a preventable cause of patient harm to critically ill children.” What you can’t see in the peer-reviewed literature is this context: at literally scores of hospitals which declined to participate in the collaborative, hundreds of sick children likely were injured or killed who probably would not have been harmed had the hospital been a collaborative member. Those harmed were tended to by dedicated staff who thought they were doing everything they could to help the kids in their care. They were dead wrong, but even today they may not know it. Certainly, their patients and the public do not.
You can find the rest of the article here.
Reform Rodeo
1. Medicaid Madness: Kaiser Health News details the debate over whether Medicaid recipients could purchase subsidized insurance on the ACA-mandated exchanges
2. On Republican Repeal: Ezra Klein discusses a piece by Peter Suderman of Reason Magazine that outlines the the dilemma that Republicans may face in their efforts to repeal the ACA.
3. Unemployment and Health Care: The Health Care Blog has a nice piece detailing the effect that rising unemployment could have on the the financial viability of hospitals.
4. Berwick Bashing: Donald Berwick will be testifying on Capital Hill this week. Politico spoke with members on the Hill about how they expect to grill Berwick.
5. Loko: Time Magazine has a piece on the FDA’s expected decision on whether to ban the highly alcoholic and caffeinated Four Loko drink that has been implicated in serious illness and death.
Update: Four Loko has decided to voluntarily remove caffeine from their alcoholic beverages.
A Doctor Speaks About Healthcare, Big Business and Justice
Filed under: Health Reform, Medicaid, Private Insurance
[Ed. Note: We received today's post from Timothy Shaw, M.D. F.A.C.S. as a comment in response to a post, "Health Care and Disparity in a 'Post-Racial' Era."]
Photo by Eva the Weaver
Twenty years ago, upon entering private medical practice for the first time it took me about a month to realize that the United States needed “Health Care Reform.” After serving the previous fifteen years in the US Army Medical Corps, I started my first civilian medical job. I was asked to come to a hospital by another surgeon to perform an ear operation on a 3 year old boy at the same time as he would be performing an eye operation. This would save the child from two anesthetics on two different days. Since I had never worked at that hospital, and apparently in order to set me straight from the start, one of the head doctors at this hospital, came up to me in the preoperative holding area, and boldly shoved the child’s chart in my face, pointed to the child’s insurance (Medicaid (Welfare)) and shamelessly told me, “if all you are going to do, is to bring this “****” in here, then we don’t need you to come here.” The poor little guy sitting in the corner with his Mom, was smiling at us with his cute partially toothless grin, and coke-bottle glasses. He didn’t realize what one of his doctors called him because of his health insurance coverage.
Again, several months later I was called to a different hospital (one that I normally did not work at either) in the same city by an operating nurse who asked if I took Medicaid “welfare patients.” She asked me if I would come to their operating room to take a coin out of a 2 year old child’s esophagus. She informed me that their hospital doctors in my specialty did not take welfare patients and they were looking for someone to do the operation as the child had choked on a coin. “Apparently someone forgot to screen this child’s insurance before he came to the operating room.” I canceled my clinic patients and drove across town, performed an esophagoscopy and removed the coin.
Obviously, the doctors in these above scenarios did not support “the Public Option” (Medicaid).
What had happened to our Health Care System? What had changed? Where was the honor that we had in the Army Medical Corps? We treated everyone from Generals to Privates and their families with the same respect. In accordance with Geneva Conventions, we even treated enemy soldiers during the Iraq War in our Combat Support Hospitals with the same care that we treated our own.
In a significant measure the United States Private Health System had changed into “Big Business.” In some measure the humanitarian emphasis had eroded.
Although spurning the pharmaceutical industry as “conflict of interest” entities, not suitable for proper patient care, surprisingly, doctors saw no apparent conflict of interest in merging with the Health Insurance Industry. Doctors and the Health Insurance Business became so closely aligned that their DNA intertwined to form a new species. This powerful new combined-arms team became the forme fruste of our new United States Health Care Industry. Doctors armed with new found business tactics, and the Health Insurance Industry armed with the legitimacy of the Doctor’s legal authority to limit health care to patients became the de facto United States Health Care System.
The business meeting replaced the medical conference to discuss “patient care” issues. To cope with the ever burgeoning bureaucracy, more and more doctors went into administration. More doctors have their MBA’s then carry black bags and make house calls. Mergers, Acquisitions, Expansions, Contracts, Covered Lives, Marketing Strategy, Demographics, Competition Threat Forecasts, Actuarial Science, and Health Insurance became the focus of many doctors. Time was spent on avoiding insurance business risk, trying to avoid the high risk patients, finding the better payer groups, etc. Hospitals became less hospitable. Doctor’s began to discharge patients so rapidly, that in the mid 1980’s the majority of States passed consumer protection laws (”Drive By Delivery Laws”) to protect mothers/newborns from being discharged from the hospital too soon.
Currently, the U.S. health care system is outrageously expensive, yet inadequate. Despite spending more than twice as much as the rest of the industrialized nations ($7,129 per capita), the United States performs poorly in comparison on major health indicators such as life expectancy, infant mortality and immunization rates. Read more
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.
Private Equity in Health Care
As lawmakers squabble over the “carried interest” tax rate, it’s nice to find a big picture overview of some of the economic activity they’re discussing. I recently read Josh Kosman’s book The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis, and I highly recommend it to our readers. Kosman painstakingly describes the byzantine financial maneuvers behind marquee private equity firms which bought “more than three thousand American companies from 2000-2008.” He describes in detail how they resist transparency (164) and “hurt their businesses competitively, limit their growth, cut jobs without reinvesting the savings, and generate mediocre returns” (195). The recipe for high earnings is simple: the firms “get large fees up front and are largely divorced from their results if their transactions fail” (195).
Like Kwak and Johnson’s account in 13 Bankers, Kosman offers a political economy account of private equity’s favored treatment by government. As he notes,
[F]our of the past eight Treasury Secretaries joined the PE industry . . . . and they have significant influence in Washington. President Bill Clinton, and both President Bushes, have also advised PE firms or worked for their companies. . . . KKR retained former Democratic House majority leader Richard Gephardt as a lobbyist and hired former RNC chairman Kenneth Mehlman as head of global public affairs. (196)
Having analyzed a wide array of buyouts, Kosman concludes that “PE firms manage their businesses to satisfy short-term greed, not for long-term survival” (51). This is a particularly dangerous attitude in health care, an industry too long dominated by short-run thinking. There can also be a troubling trade-off between care and profit in health care, as the nursing home industry demonstrates.
It’s precisely this mentality that FDIC Chair Sheila Bair indicted in her testimony before the FCIC:
[W]hile the establishment of emergency backstops to contain financial crises can help to limit damage to the wider economy in the short-run, without needed reforms these policies will promote financial activity and risk-taking at the expense of other sectors of the economy. Corporate sector practices [have] had the effect of distorting of decision-making away from long-term profitability and stability and toward short-term gains with insufficient regard for risk. . . .Meaningful reform of these practices will be essential to promote better long-term decision-making in the U.S. corporate sector.
We can only hope that members of Congress keep both Bair’s and Kosman’s insights in mind. Congratulations to Kosman for authoring a compelling and well-researched analysis of one of the most troubling engines of inequality in the US.
Cross Posted at Concurring Opinions
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.
Posts from Health Reform Watch have been cited by media sources throughout the country, including The New York Times, Washington Post, L.A. Times, Kaiser Health News, The Health Care Blog, NPR's Planet Money Blog, Duke Univ. Med. Center News, American Health Line Alerts, BusinessWeek.com, Concurring Opinions, Balkinization, The New England Journal of Medicine, Harvard's Nieman Foundation for Journalism, Las Vegas Sun, Maggie Mahar, Ezra Klein, Tom Geoghegan, and the official homepage of the Office of the Democratic Majority Leader of the House of Representatives, Steny Hoyer.
