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When Giants Stumble

When giants stumbleHDR Sunset

Local Cleveland channel News 5 reporter Cassandra Nist posted today:

The Cleveland Clinic announced Wednesday morning that they will be cutting $330 million from their 2014 budget.

“This is a process and the Cleveland Clinic is focused on driving a more efficient healthcare system. The goal is to make healthcare more affordable [and] efficient to patients,” Cleveland Clinic spokeswoman Eileen Sheil said.

The Cleveland Clinic acknowledges that there will be a reduction in the workforce, however the numbers are unknown at this time.

Shiel said this is “not unique to the Cleveland Clinic“ and that it is ”happening to hospitals across the nation.”

Our large healthcare providers —health systems and big hospitals —are in trouble. Public and political concern about hight costs are putting pressure on providers to lean out their organizations. (The true source of much of that cost may be out of their control, by the way). Simultaneously, we are living through a sea change in how care is being delivered. We’re not as far away from the smart phone physical as one may think.

Let’s also not forget population health. Forget concerns about about bridging the gap between the payment models. Do we really know how to take our existing large, complex healthcare ecosystem and turn it 180 degrees towards prevention and wellness?

Recently, while speaking to a group of hospital leaders, I shared an analogy I’ve been kicking around in my brain: these systems are giants and they won’t suddenly fall over. Instead, like Atlas, they will become increasingly unable to bear their the weight and will begin to stumble. Some, from time to time, might even drop to a knee to catch their breath.

Is Cleveland Clinic the first giant to stumble?

I’m all for cutting the fat and being more efficient. But how much of that is spin and how much reflects concerns around constrained reembursement and a changing care model?

Not to be all grey clouds and Andy Rooney here… These giants are giants for a reason. I have great faith in their sophistication, leadership and clinical abilities. Unlike small community hospitals, I doubt we’ll see any of them fall down outright. The smart ones, like Cleveland Clinic, are already thinking about:

  • Population health - Cleveland Clinic’s lauded bundled payment program for Lowes and Walmart is a clever example.
  • Patient engagement - Cleveland Clinic’s highly regarded Empathy video shows a serious commitment to the human side of healthcare.
  • Integrated model - The clinic model, with its employed physicians and team-based care, continues to make a lot of sense. I think we’ll see large health plans follow Lowes and Walmart, with renowned clinics like Cleveland Clinic, Mayo Clinic, Stanford, and Johns Hopkins, become preferred centers of excellence for these plans (further challenging community systems and hospitals).

Articles on hospital charges raise eyebrows, but they miss the mark —charges mean very little

There’s been a lot of talk this week about the data CMS released. It shows hospital charges and Medicare payment.

Articles like this raise eyebrows:

In one hospital in Dallas, the average bill for treating simple pneumonia was $14,610, while another there charged over $38,000.

via Hospital Billing Varies Wildly, U.S. Data Shows -

And they are missing the big picture.

The reason prices vary so greatly is the result of how commercial insurance contracts are negotiated and paid.

Hospitals want an annual margin - about 4% on average. To get there, they have to look at what the contracts pay well on and what they don’t. Medicare is irrelevant because it pays on a fee schedule. So they focus on commercial contracts. If one hospital’s contracts pay well on pneumonia, then the price gets raised.

I’m not assigning a value judgement to how or why this is done. But it is worth pointing out.

I also think it’s misleading to suggest those without insurance foot the full bill. While there are tragic examples, that’s rarely the case. Again, not suggesting its right or wrong, just saying there’s more to the story.

What can we learn from hospital charges? Very little. They are the ghosts of an ever changing industry based on a third party payment system.

NPR plays it safer:

…the numbers only tell us part of the story. “Charges are list prices,” he says. “They’re sticker prices.”

The Washington Post addressess uninsured programs:

“The chargemaster can be confusing because it’s highly variable and generally not what a consumer would pay,” said Carol Steinberg, vice president at the American Hospital Association. “Even an uninsured person isn’t always paying the chargemaster rate.”

Paul Levy nails it on his blog, (although he and I may disagree on the role of commercial insurance):

This is a case where the release of bad data is worse than having no data at all. A hospital’s chargemaster is an archaic fiction, a way previously used to allocate the joint and common costs of the hospital to particular services. It does not serve as the basis for how much a hospital is paid by Medicare. It does not serve as the basis for how much a hospital is paid by Medicaid. It does not serve as the basis for how much a hospital is paid by private insurers.

Updated to add:

David Lazarus asks if we are ok with the end result - high bills, in the his LA Times coverage:

Medical costs are often inexplicably high and are almost always kept hidden from patients until the bill arrives. Health insurance, meanwhile, is frequently coverage in name only.

What do you think? Does the charge data tell you anything meaningful?

between a Medicare rock and budget hard place

While not originally intended to be a bona fide blog post, the following started life on Google Plus as a reaction to the NPR article below.  So, here we are, between a Medicare rock and budget hard place.

Costs are clearly a problem. Our healthcare system is the most expensive in the world. Take a look at the 2003 figures from the Kaiser Family Foundation. Per capita costs, in 2003, in the US were $3,394 above those of the UK.

We need to work on the costs. That's clear.

But how do we do keep things moving in the mean time? The policy wonks love the airplane analogy: trying to fix healthcare is like trying to work on a jet engine while in flight.

Julie Rovner, reporting for NPR, highlights the challenges doctors are up against as the result of the budget and potential Medicare cuts.

Doctors face an even bigger problem. They're already looking at a 29.5 percent pay cut next Jan. 1 unless Congress acts to change it...But to fix the doctor pay problem will cost more than $300 billion. Industry consultant Laszewski says that just digs the hole deeper for the supercommittee working on the deficit issue.

The question then becomes, where is the $300 billion in excess costs? Without doubt there is waste in our system. Although not all costs are bad. With the high cost of also comes some decent quality. The Commonwealth Fund reports:

Compared with [five other major] countries, the U.S. fares best on provision and receipt of preventive care, a dimension of "right care." However, its low scores on chronic care management and safe, coordinated, and patient-centered care pull its overall quality score down.

Important to note, the Commonwealth Fund report implicates the challenges of access to care as a key contributor to the chronic scores. With nearly 90 million uninsured in the US, its hard to manage acute conditions before they become chronic. There is a lot of that $300 billion in cost right there.

Let's say this pans out as NPR (and many others) predict. Doctors will have a few choices, among them:

1) Take a pay cut. Yeah, its a little more complex than that - they have to downsize practices, maybe lay off staff, its not pretty, but it's an option. The Association of American Medical Colleges says the average debt for medical school graduates is between $150,000 and $180,000. Right out of the gate, many physicians are in the hole. We have this image of doctors as highly paid - largely accurate relative to US median salaries - and very affluent. Some specialties do facilitate affluence, perhaps justifiably (I want my surgeon well paid!). In many cases the take home pay of primary care, internal medicine and family physicians is not quite as high as one might think. For example, the median before tax take home pay for family physicians in the Mid-Atlantic region is $140,000; take out taxes, school loans and cost of living… See what I mean? (source: AAFP )

2) Stop seeing Medicare patients - Right now, in 2011, Medicare covers 47.6 Million Americans. The average annual spend per enrollee is $303,000. So when some fraction of those 47.6 Million are unable to see a primary care physician or specialist who no longer accepts Medicare, what happens? Do they end up in the hospital where the cost of treatment is considerably higher? Does that drive the per enrollee spend up and in turn push medicare deeper into insolvency? There is a healthy amount of speculation baked into that scenario, but it is well worth consideration. (Sources: Kaiser State Facts ) By the way, the vast majority of hospitals in this country cannot cover costs on Medicare reimbursement and Medicare makes up around 50-60% of business for hospitals. If the same is true of Physicians - I don't have the figures for physicians, but they cannot cover costs, ceasing to see Medicare patients may actually be advantageous to them financially. (I'll research and post a follow up along with my editorial opinion how that's a real failure of the US system which ultimately fails patients. Maybe this parenthetical will suffice.).

3) Doctors can cut some costs - what are these costs? I think we have established I'm no economist. (Have I told you about that 3rd semester of calculus? Yeah, I'm going to stick to reading Children's books). The limited understanding I do have is indirect costs of care are considerably larger than the direct costs of care. Costs to Medicare, in particular have many drivers. According to Kaiser, the largest costs come from Hospital Care - a seriously complex system in its right. How can doctors, constrained by budgets, reduce those costs? They can help reduce medical errors and length of stay - we are seeing those tends now, thankfully. They can use less expensive supplies (IE put the squeeze on suppliers who are making record profits). They have some recourse, to be sure. Still, these are things that have a long time playing out.

And now for the op-ed portion of our show…

I'm not sure what the answer is. The budget crisis is real and Medicare cannot afford to keep spending at the current rate; no arguments there. But, it takes a while to squeeze costs out. Remember the jet engine in flight? What happens when the budget puts the squeeze on the physicians; What will their first reaction be? Is it to cut direct costs and downsize a practice, or take a personal pay cut? The hope is reducing costs will help entice physicians to become more cost conscious. Hey, it may work, but not before a last ditch effort is made to save the jet engine from flaming out first.