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.”
Health Reform, a Class Act
Class Act
Thomas (Tim) Greaney
Director, Center for Health Law Studies
Saint Louis University School of Law
A few headlines from coverage of the passage of the health reform bill:
Winners, Losers in the House Healthcare Bill (Reuters)
Health Reform: What’s in it for you? (US News)
Already Insured? Get Ready to Pay More (CBS)
Almost immediately after the House vote on Sunday, the media switched its “horse race” coverage from analyzing the politics of the affair to what it characterized as a clash of economic classes. Analysts were often quick to suggest that the average American might find himself in the loser column. Others offered the conventional ”on the one hand, on the other hand” pseudo-journalism, probably leaving most to assume (not unreasonably, based on their experience under trickle-down economics) that they have little to gain. And inevitably, confusion spawns cynicism: The first question on Monday from my 91 year old uncle was: ”Do I still have Medicare?”
If we are going to do a triage by economic class, lets get it right: I’m still waiting for a headline writer to capture the real story of the legislation: Health Reform Law Reallocates Opportunity to the Working Class
One unassailable fact that emerged from the year-long legislative debate is that the working poor and those in the middle economic stratum are the primary victims of our dysfunctional health system. It is widely recognized that health care debt ranks at or near the top causes of personal bankruptcies. Less commented on, however, is the effect of widespread financial insecurity resulting from the high cost and lack of access to care. More than 4 in 10 people earning under $40,000 per year say their household has had problems paying medical bills over the past year. Not only does that statistic imply that many households are adjusting their budgets away from socially-important expenditures, like childcare and education, but it also reveals the personal toll imposed on lower income individuals and families. For those who have insurance, increasing premiums have forced them to take on more risk: Nearly one in five Americans say cost increases caused them or their employer to switch to a less comprehensive health plan, while almost half of all people purchasing insurance in the dysfunctional individual market say they have had to switch to a less comprehensive plan.
The misinformation spread throughout the debate has lent credence to those who would paint health reform as a victory for elites. Judging from the expressions of outrage about health reform by some middle class citizens, many appear to carry the misapprehension that the primary beneficiaries of the legislation are those unwilling to work. Nothing could be further from the truth; today’s uninsured are predominantly found in working families. In fact over 15% of employed workers and a stunning 41% of low income workers lack health insurance. And given the stampede of employers dropping health care coverage for their workers, the epidemic of uninsurance or underinsurance is undoubtedly spreading upward in the economic class order.
Also under-reported are the many ways the current health care system works to disadvantage the working class. Most prominent is the tax benefit which gives a significant and regressive tax subsidy to wealthy elites. Excluding employer contributions for health insurance from taxable income–at $168 billion per year– is the largest “tax expenditure” in the budget– and obviously benefits the higher brackets more than the lower ones. (Revising this indefensible and economically inefficient redistribution would have been a sensible way to help fund reform, but Congress settled for adding some progressivity to the payroll tax and some other taxes aimed at upper income citizens).
In addition, the health care system perversely redistributes wealth in a variety of other ways. For example, as Mark Hall and Carl Schneider have made clear, hospitals and physicians price discriminate against those with lower incomes: the uninsured and those in the individual market –who generally lack the bargaining power to command lower prices–pay higher prices to hospitals (often as much as two or three times higher) than those with group insurance.
Even less widely acknowledged is the fact that insurance favors the upper classes in subtle ways. Co-pays, for example, burden those with low incomes much more severely than upper class insureds. Havinghurst and Richman aptly summarize the “distributive injustice” of the system:
[C]onditioning eligibility for insurer payments on patients’ willingness to make certain out-of-pocket payments causes lower income participants in employee health plans to get disproportionately fewer benefits than their more affluent coworkers receive in return for equivalent premiums
To be sure, the health reform legislation does not assure equal access to care among the social classes; but it certainly is a big step in the right direction.
I doubt that most Americans accept the idea that social class should dictate vast differences in opportunity for our citizens. The capacity of health reform to lessen the economic and physical burdens imposed on the working class then should be headline news.
[Ed. note, post script: See excellent analysis published after this post by David Leonhardt characterizing the bill as "the federal government's biggest attack on economic inequality since inequality began rising more than three decades ago"
http://www.nytimes.com/2010/03/24/business/24leonhardt.html?src=me&ref=homepage]
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.
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.
“15 Years or 7 to Pay Off Your Debt. . .”
Filed under: Health Care Economics, Proposed Legislation
I have been watching the Alex Gibney documentary film version of Maggie Mahar’s book Money-Driven Medicine. It’s fascinating, and I’ll definitely do a few more blog posts on it. For now, I’d like to reflect on a quote from early in the film, from a Dr. Berwick who’s been a keen observer of the US health system. He notes that physicians who are specialists do lots of compensable and specific procedures, and therefore usually earn much more than primary care doctors, leading to an artificial glut of specialists. I’d known this for some time, but Dr. Berwick makes the fact particularly compelling by comparing the concrete choices faced by med students: “15 years or 7 to pay off” their educational debts. It’s no wonder there are so many specialists.
The quote reminded me of Jesse Larner’s recent idealized “health care speech” for President Obama, which would promise a “publicly paid medical education for qualified medical students, researchers, and other health care workers so that the profession is open to all who are bright and dedicated, regardless of financial resources.” Just as our tax code pushes the average citizen toward unnaturally high levels of debt via the mortgage deduction, medical education financing currently is biasing physicians toward unsustainable debt loads that ultimately drain the public weal by fueling an entrepreneurial mindset in a profession founded in the public interest.
The US already has some limited loan forgiveness programs for physicians who work in underserved regions. It is time to expand these subsidies to cover more physicians working in primary care.
The Cost of Dying, 60 Minutes
In case you missed it.
More Institutional Health Economics, Please!
Filed under: Health Care Economics, Hospital Finances, Physician Compensation, Private Insurance
Elinor Ostrom with Indiana University president Michael McRobbie at press conference announcing her Nobel Prize. Photo by aschweigert via Flickr
Today’s Nobel Prize award for institutional economists Oliver Williamson and Elinor Ostrom is a welcome step toward methodological pluralism in the profession. Both have looked outside markets to understand the organization of economic life. Ostrom is not even an economist–she is a political scientist by profession. As Bob Shiller observes:
This award is part of the merging of the social sciences. Economics has been too isolated and too stuck on the view that markets are efficient and self-regulating. It has derailed our thinking.
According to the NYT, “The Nobel judges, in their description of Mr. Williamson’s and Ms. Ostrom’s achievement, said that ‘economic science’ should extend beyond market theory and into actual behavior, and the two award winners, in their empirical work, had done this.”
There is a great need for more of this type of work in health economics. Joe White’s Markets and Medical Care: The United States, 1993–2005 is one good exemplar of needed work here; he eschews “discussions of how economic theory can be applied to medical care production and delivery” and instead “focuses on ‘the market’ in its actual, not theoretical, form, as it existed in the United States.” White describes case after case where consolidation, not medical need, drove industry structure. He leaves the reader with a clear and convincing image of a space where varying levels of provider and insurer power, not productivity, is the key to understanding changes in the profitability of services. I’ve seen few better brief explanations of rising medical costs than the following: Read more
American Health Lawyers Association on the Stark Law and its Revision: a Good Step Towards Holistic & Ethical Reform
Health reform that focuses exclusively on health care finance — that is, how we pay for universal access to insurance coverage — will not produce successful reform. Reform must be holistic, with a focus on the entire system, as well as its component parts, including whether the system is structured to deliver the right kind of health care services in the most appropriate setting, whether we have sufficient quantity and kind of health care professionals and technology geographically dispersed to provide the health care services that people will presumably have insurance to access, and whether the system properly incentivizes health care professionals to make decisions that are efficient, effective, and in patients’ best interests. This is a massive undertaking, with a tremendous risk that important components will be overlooked precisely because of the size of the undertaking. The Stark Law represents the kind of on-the-ground healthcare delivery problems that healthcare reform must tackle.
The American Health Lawyers Association’s Public Interest Committee today released a Whitepaper entitled: “A Public Policy Discussion: Taking Measure of the Stark Law” analyzing the ” Ethics in Patient Referrals Act” (and its progeny), more commonly known collectively as the “Stark Law“, after its primary sponsor, Congressman Pete Stark, who now counts himself among the many who believe that while the problem the law aimed to address is real, the statute and its multitudinous exceptions have become a nightmare.
Stark was enacted in response to empirical studies showing 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 (the Whitepaper notes that no studies indicated that this higher use equated to over-utilization). The implication, then, is that the opportunity for additional profit causes excessive referrals, whether consciously or unconsciously. Thus, Stark sought to establish a bright line test regarding the propriety of physician referrals. Stark prohibits a physician from referring patients to entities in which the physician (or a family member) holds an equity interest. Congress seeks to ensure that patients are referred only for tests and other health care services that are medically necessary and appropriate. The law also prohibits the entity actually providing the services to the patient (the recipient of the referral) from billing Medicare if the patient care resulted from an impermissible referral (even if the patient needed the service).
But a basic prohibition proved too broad to be practicable. For example, how should the law treat rural areas where the only potential investors in an MRI for the community are all of the local physicians? While many of situations crying for exceptions have been legitimate, virtually every single business relationship that seems justified requires the adoption of a new exception — which, the Whitepaper points out, stymies innovation in a dynamic health care market. I would add that simultaneous with the continuous recognition of new exceptions, Congress and CMS keep adopting new prohibitions in response to physicians (with the aid of their lawyers) who take advantage of loopholes by engaging in business practices that violate the philosophical goals of the law, but are not specifically banned.
And so now we simply have a mess on our hands. According to the Whitepaper, on the positive side, Stark has encouraged health care institutions to adopt corporate compliance programs and contract management systems; hospitals are more careful about their relationships with physicians. Repeating a recurring theme of this blog about physicians’ conflicts of interest, the AHLA Whitepaper suggests that Stark has had less effect on physicians’ awareness and avoidance of conflicts of interest — my observation is that they continue to engage in business arrangements and practices that increase healthcare expenditures and cause patients to receive unnecessary medical services. This is likely because physicians don’t understand Stark, which is rarely enforced against them. The Whitepaper conveys the observations of some of its participants that Stark has caused a restructuring of healthcare delivery (some would argue that physicians have simply re-packaged their business relationships, rather than eliminated their “pernicious” conduct). Even more problematic is that Stark precludes the experimental implementation of some creative ideas to reduce health care costs and improve quality, such as pay-for-performance, shared savings, and bundled payments. Essential to a reform of how we deliver health care is an alignment of physician and institutional financial incentives - Stark (as well as some other laws) makes difficult that effort.
The AHLA Whitepaper seeks statutory reforms and increased CMS discretion as part of overall healthcare reform. It suggests reimbursement modifications as a mechanism that would more directly accomplish the government’s goals of reducing costs and controlling utilization, including: decreasing reimbursement for ancillary services provided through a physician group practice; decreasing payments for high margin services; implementing more stringent credentialing requirements for the provision of certain services; bundling the payment for a physician office visit and ancillary services; and payments for episodes of care, rather than delivery of specific services.
While AHLA addressed an important problem that begs for resolution, the ultimate challenges for health care reform that the Stark problem points up are significant:
- First is the question of whether reform will restructure health care delivery so that patients receive quality care that they actually need, in a timely cost-effective and convenient way.
- Second is how to identify the most effective means of adjusting physicians’ norms of behavior so that they recognize and avoid or ameliorate conflicts of interest that adversely affect their care of patients.
- Third, since the HHS OIG began issuing its Guidances, the relationship between government and provider has been like one of cat and mouse — the government articulates a philosophy about its interpretation of fraud, waste and abuse and the attendant practices that violate the law, and providers adjust their behavior to discontinue the specifically enumerated offensive practices, and then adopt new behaviors that government then addresses and it goes on and on and on.
- All of the above points result from the fact that politicians have created a huge perception divide — physicians believe that they are professionals operating in a market who should be guided by their ethical code and the business practices that make America great - government regulators and prosecutors believe that taxpayers foot 40-60% of the healthcare bill, and should expect very stringent oversight of the behavior of health care providers to make sure taxpayer money isn’t being wasted. Whatever our health care system looks like this time next year, everyone — provider, supplier, and patient needs to acknowledge that irrespective of what descriptors we use, it is a system significantly underwritten by the government, which means that it necessarily operates by different rules….
In the meantime, the AHLA Whitepaper is a terrific description of all that is right and wrong with the Stark Law. Let’s hope Congress takes notice. More important, it exemplifies the important contributions professional organizations can make to productively convey to policy-makers the on-the-ground effects of their laws. The AHLA process also models an exemplary collaboration between the private sector and government to their mutual education and, hopefully, benefit.
While the author is an AHLA board member, this post solely represents the author’s interpretation of and opinions about the AHLA Whitepaper, and has not been reviewed by any director, officer or member of AHLA. The author had no involvement in the production of the Whitepaper.
Will Conflicts of Interest Sabotage Health Reform?
Filed under: Advertising & Lobbying, Hospital Finances, Proposed Legislation
A Brown Leghorn hen. Said by the author, Thaddeus Quintin of Chagrin Falls Ohio, to be "the only one of the three leghorns that survived a recent fox attack."
With health care reform in full gear, one crucial question is that of prioritization. Where should we focus our efforts? Who needs greater treatment, and what type of care is missing from the everyday lives of everyday Americans? Unfortunately, the politicians crafting the legislation may be swayed–not surprisingly–by stakeholders and lobbyists who are concerned with how reform will affect their bottom line. Interestingly, it is not just private insurance companies and pharmaceutical companies that are influencing the legislation.
A recent New York Times piece underscores how the emerging landscape of physician-owned hospitals is helping to shape congressional legislation.
The Times article states that one of the largest sources of campaign contributions for the Senate Democrats Campaign Committee is from the Doctors Hospital at Renaissance for a not-so-paltry sum of $500,000. Ironically, the event that raised the sum was at the home of Alonzo Cantu, a real estate developer in–you guessed it–McAllen Texas. Another event at Cantu’s house “brought in at least $800,000 for the committee’s House counterpart, the Democratic Congressional Campaign Committee.”
McAllen became (in)famous as the town depicted by Atul Gawande in his now oft-cited piece exposing the framework of incentives available to providers and hospitals to perform a greater number of tests and procedures in order to increase their bottom line, even when the greater volume of tests and procedures does not necessarily correspond to an increase in quality of care. Health Reform Watch has discussed the “cost conundrum” before. Nevertheless, the incessant media and blog coverage of our inefficient system does not seem to have dissuaded those with a stake in that inefficient system from advocating for the status quo. As the Times points out that:
…like others here, he [Mr. Cantu] is not pleased about the president’s depiction of health care in McAllen.
“What’s so upsetting,” he said, “is that to make his case he threw McAllen under the bus.”
One might ask–given Gawande’s seemingly accurate portrayal of the overly-entrepreneurial nature of McAllen’s health care system–why we shouldn’t throw McAllen under the bus, especially when we can put a face on a problem undermining our system? Mr. Cantu and other Doctors Hospital officials are said to have offered the following argument for why Doctors Hospital and other physician-owned hospitals were beneficial and shouldn’t be singled out:
They have argued they are being unfairly grouped with boutique specialty hospitals that do not have emergency departments and that cater to privately insured patients. Eighty-eight percent of Doctors Hospital patients are either on public insurance or uninsured, 750 babies are delivered there a month, and no one is turned away because of inability to pay, they said.
Physician ownership, they added, has meant major investments in the latest equipment and good staffing ratios for nurses. Appealing to local pride, the hospital markets itself as the first in the area to offer services like PET scans, robotic surgery and breast imaging, which once required trips to Houston or San Antonio.
It is perhaps important to remember, as the McAllen boys attempt to mitigate the damages of the Gawande article, just what Gawande found. As we wrote prior:
Gawande writes that McAllen “is one of the most expensive health-care markets in the country. Only Miami-which has much higher labor and living costs-spends more per person on health care. In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.”
El Paso, Texas, similarly situated, spends significantly less– half as much.
Might I suggest that there is little consolation in the fact that the largesse found in McAllen is largely funded through “public insurance,” or that there are “boutique hospitals” which charge even more?
In addition, “Local pride” aside, the real question is whether McAllen needs a PET scan facility or robotic surgery. Importantly, Texas is not a Certificate of Need (C.O.N.) law state. Therefore “local pride” (i.e. desire of a local, often private, facility) may often trump the actual “need” of the community. This idea is reinforced when taking into account that a PET scanner may have an annual operational cost of over $1 million, in addition to the upfront construction costs that can also venture into the millions. Altruism aside for the moment (or perhaps, it seems, longer), the investors in those machines will seek to recoup their cost plus profit. To do so, they simply must use that machine.
Thus, as it stands, the allocation of expensive high-tech machinery in physician-owned hospitals is based upon the government subsidized decision of private investors regarding the liklihood of turning a profit (for the subsidies, think “depreciation” and “expensing” for business equipment; think “public insurance” for billables). Perhaps we should not be quite so surprised when they then comport themselves in a way which ensures such a profit. But, it certainly may be argued that with our health care system in its precarious state, without a showing of actual need, the trip to Houston or San Antonio for very advanced high-tech procedures is a price we must be willing to pay and that the allocation of medical resources (and government subsidies for such) should be based on public need and not private profit.
In addition, given the overlap between physician-owned hospitals and single specialty hospitals, as Professor Frank Pasquale points out, these single specialty hospitals may siphon scarce health resources and undercut the care that community hospitals provide.
In a previous post, I discussed comparing a health care system to a pyramid, the foundation of the pyramid requiring a solid base of primary, preventive, and wellness care, that tapers to the top of the pyramid where we find the specialists utilizing, for example, advanced equipment and procedures like robotic surgery. However, a stable foundation for the pyramid is necessary, and the favoritism described above may stymie actual reform–reform that will provide Americans with the basics that they need at an affordable price.
Democrats are surely not the only ones to blame, and money has flowed to Republicans as well. As we discussed in an earlier post, a Common Cause report finds that $1.4 million dollars per day is being spent by healthcare interests lobbying Congress this year. From the perspective of the physician-owned hospitals and private health insurance companies, donating to both sides of the aisle makes sense; it ensures that both political parties have a financial stake in preventing legislation that would limit physician-owned hospitals from being subject to greater restrictions (like CON laws), or tightly regulating insurer practices. Though there are some restrictions governing physician-owned facilities in the House bill, these have been watered down, and will now allow facilities like Doctors Hospital to maintain their current structure, and even expand in certain future circumstances. As the Times reports:
The Senate Finance Committee has yet to release its final draft, but bills passed by two House committees would prevent the opening of new physician-owned hospitals by disqualifying them from receiving Medicare reimbursements. Existing facilities like Doctors Hospital would be grandfathered in.
One key provision would limit a hospital’s ownership by doctors to the level in place at the time of enactment. That is a change from previous language in House bills to restrict physician ownership to 40 percent. It would have forced Doctors Hospital, where physicians have an 82-percent stake, to be sold or required some of its owners to divest.
The future disallowance by Congress of Medicare funding for procedures performed at physician-owned hospitals is a tacit acknowledgment that the structure is one in which conflicts of interest abound; that he who owns a machine and will profit from its use is apt to refer patients for its use–regardless of actual need. It is the acknowledgment that the foxes are essentially guarding the henhouse–and that hens cost money. The exception made for Doctors Hospital and others of its ilk, however, considering the large campaign contributions, gives rise to other questions about conflicts of interest.
The problem is not simply the amount of money that is being funneled to Congress by the health care industry. The more pertinent issue at this point is: Read more
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