Is Transparency In Healthcare Costs Possible?

One of Webster’s definitions of transparency is “characterized by visibility of information especially concerning business practices.” Therefore, transparency means that the business practices are easily discernible to the public. I have long felt that the business practices of the healthcare industry are lacking in transparency, which means it’s difficult to act as an intelligent consumer of healthcare. As consumers, we’re a lot like car buyers before it was possible to go on-line and get complete information on every make and model of car with every possible accessory. Although more information is now available on-line for consumers to learn about the charges and approximate out-of-pocket costs for selected healthcare procedures, such as hip and knee replacements, the actual cost of care is still nearly impossible to find.

Part of the reason for the difficulty in determining the cost of medical care is that consumers generally associate charges with cost. If you buy a bunch of bananas, you know you’re going to pay $1.10 a pound. That is both the charge and the cost to the shopper. When it comes to healthcare, the charges almost always have no relation to the cost to the patient. Even if the patient has insurance with a high deductible, the cost to that person will be whatever the hospital or doctor has negotiated as the price the insurer will pay the provider for that service, regardless of the charges. For example, the charges associated with a hip replacement may be $30,000, but the insurance company may pay only $15,000. If you have insurance with a $5,000 deductible, you will pay $5,000 and your insurer will pay $10,000. Although the payment, $15,000, is 50% of charges, there is no true relationship. The hospital, in this instance, negotiated a rate of $15,000 with a particular insurer. By the way, the hospital may only receive $14,000 from other insurers and even less from Medicare.  Another reason why it’s difficult for the consumer to get information about the cost of a service is that the provider is almost always prohibited from disclosing what an insurer pays it for a given service.

"The public deserves greater transparency in our healthcare system."

At this point you should be asking yourself two questions. The first is why are the charges so high in relation to the actual cost or payment received? The second is why are providers prohibited from disclosing what they are paid? You may even have a third question, which is what is the hospital’s actual cost to replace that hip? The answer to the first question is that historically some insurers paid hospitals on the basis of charges. As more insurers moved away from paying charges, the hospitals increased the charges to get more dollars from the few who paid charges. The answer to the second question is that insurers were afraid that if every hospital was aware of what every other hospital was paid, it would lead to everyone holding out for what the highest paid hospital was receiving for that procedure. I have long felt that this explanation was a cop out on the part of insurers and regulators. The insurers should have been able to justify any difference in payment and the regulators should have insisted on an explanation, given that insurance costs have been out of control. Many insurers and politicians decried the fact that consumers never consider the cost in making decisions about their care, but they wouldn’t arm them with the information necessary to make intelligent decisions. This underlying lack of transparency persists to the detriment of the consumer and the premium-paying public.

Now for the third question, what does it actually cost the hospital for a patient undergoing a hip replacement? The answer, of course, varies from one patient to another and from one doctor to another. Some patients will require more days in the hospital or more testing than others, so the costs will vary. Different doctors take different amounts of time to perform the procedure and may use different implants, also resulting in variation in cost. However, hospitals have become more sophisticated in using cost accounting techniques to determine their costs for a given procedure and can even break it out by physician. Some components of cost associated with overhead, such as human resources, do require allocation methodologies. Hospitals are required to submit extensive cost information to Medicare, which is available to the public but difficult to interpret.

With the federal government now responsible for more than 50% of healthcare costs, with the increases in health benefits a drag on our economy and with per capita healthcare costs twice the rate of some other European countries, the public deserves greater transparency in our healthcare system. I would start by systematically providing information to the public on what each payer pays each hospital for the top 20 diagnoses and procedures. That should lead to some very interesting questions about variation in payment and to the cost structures that underlie those payments. It should also lead to insurers and hospitals having to explain those differences.

I look forward to your opinions and comments. --Lou Giancola

Rhode Island or Vermont -- Who has the Right Answer for Healthcare Reform?

I had the opportunity to interact with two individuals who have significant roles in leading healthcare reform in Rhode Island (RI) and Vermont (VT)—Christine (Christie) Ferguson and Anya Rader Wallack.

Christie Ferguson

Christie Ferguson has been appointed Director of the RI Health Benefits Exchange. She’s been on the job for five weeks and is struggling with the balance of just getting the Exchange functioning and addressing the larger issues of improving outcomes and controlling costs. She clearly understands that insurance coverage is important, but not sufficient. Improving the effectiveness and efficiency of the system had to be accomplished through the aggregated purchasing power of the Exchange. The purchasing power amassed through the small employer groups and the non-group individuals mandate —those likely to obtain coverage through the Exchange—will not be sufficient to drive the necessary changes. She faces the challenge of somehow marshalling the purchasing power of state employees (19,000) and Medicaid (224,000) to implement payment reform and other tactics designed to improve quality and bend the cost curve.  Other populations that might be coordinated are municipal employees. Coverage is currently purchased for these employees through several buying cooperatives. The question is whether the regulatory and political climate will make it possible to have all of these entities establish similar standards for their plans related to the role of primary care, participation in the provider network, generic drug use and quality. This is a tall order, but Ms. Ferguson has experience in state government and may be able to pull it off.

Anya Rader Wallack

Anya Rader Wallack hasn’t been around healthcare as long as Christie Ferguson, but she finds herself heading up a very ambitious effort in VT to change the state’s healthcare system. Until her recent appointment as Chairwoman of the Green Mountain Care Board, Ms. Rader Wallack served as the Deputy Chief of Staff to Governor Shumlin for Healthcare Reform. The Green Mountain Health Board was created by the VT Legislature in 2011 to:

·         improve the health of Vermonters;

·         oversee a new health system designed to improve quality while reducing the rate of growth in costs;

·         regulate hospital budgets and major capital expenditures as well as health insurance rates;

·         approve plans for health insurance benefits in Vermont’s new “exchange” program as well as plan to recruit and retain health professions; and

·         build and maintain electronic health information systems.

Wow! That’s an impressive set of goals and a tremendous concentration of power in the hands of a five-person board consisting of two doctors, a business owner and the VT Secretary of Human Services, in addition to Radar Wallack. VT has a population of 619,000, one major teaching hospital (Fletcher Allen in Burlington) and 13 community hospitals. Many Vermonters are served by the Dartmouth-Hitchcock Medical Center, another major teaching hospital located just over the border in Hanover, New Hampshire. Radar Wallack says that, although a Healthcare Exchange will be implemented, it will not be the centerpiece of reform in VT. She and her staff are spending more time reviewing hospital budgets and launching projects to test new payment methodologies.

Keep in mind that neither state has the ability to directly affect changes in the Medicare program (18% or 111,420 in VT and 17% or 176,375 in RI) or employer self insured programs, which are regulated under federal laws.

Which state do you think has the greatest chance of successfully extending coverage, improving quality and bending the cost curve?

I look forward to your comments and opinions. —Lou Giancola

BETTER HEALTHCARE, DECREASED COSTS: A MODEL WE CAN REPLICATE

A New  York Times editorial on September 3, cites the work of Bellin Health, a relatively small healthcare system in Green Bay, Wis., in managing healthcare costs. I was impressed by this piece for several reasons and wanted to bring it to your attention.

First, it is interesting that a relatively small hospital (178 beds) has managed to build a system of care capable of controlling costs and achieving extraordinary quality results. We usually hear about Geisinger and Kaiser Health Systems as achieving these results.  Yet here is a small provider marshalling the resources and the know-how to make a difference. It should inspire the rest of us to explore new ways of delivering care.

Second, it is interesting to see the tactics employed by Bellin to achieve those results. Bellin has employed a large number of primary care physicians and nurse practitioners to ensure that patients can be seen promptly. Their experience seems to confirm that a strong primary care base, combined with convenient and timely access, not only improves outcomes but reduces overall costs. This is not surprising as countries with higher ratio of primary care providers to population tend to have better health outcomes and lower costs.

"A strong primary care base, combined with convenient and timely access, not only improves outcomes but reduces overall costs."

Third, it seems that Bellin has been successful in working effectively with employers to lower their healthcare costs. The editorial notes that a number of companies have contracted with Bellin to provide on-site care to their employees. This encourages employees to seek care early and avoid expensive care in emergency departments. This information, I hope, will encourage more companies to partner with local healthcare systems to find innovative ways to reduce their healthcare expenses. In my experience companies are usually reluctant to make upfront investments even though they are crazed about their increased cost of health insurance.

As the CEO of a small healthcare system, I am sometimes overwhelmed by the challenge of converting from a traditional hospital-based system where volume is king to a system based on improving the health of the population while helping to control the costs of healthcare. Managing the transition from hospital buildings and state-of-the-art technology as capital to primary care physicians and nurse practitioners as capital, is incredibly challenging. In the midst of this transition, it is encouraging to hear about a system that seems to have made great strides in that evolution.

I look forward to your comments. —Lou Giancola

THE POLITICS OF MEDICARE: DISTORTION AND FLIP-FLOPPING

Courtesy Scholastic.com

I thought this election was supposed to be about the economy and jobs, but lately the headlines have mostly been about Medicare. And, surprise, the candidates and their surrogates are playing fast and loose with the facts and neither is talking about the real issues or solutions. Cynics that we’ve all become, you are probably saying, what did you expect? I guess I didn’t expect the level of distortion and flip-flopping that seems to be going on in this campaign.

Gov. Mitt Romney and his running mate, Paul Ryan, both of whom are purportedly budget hawks, are going around criticizing the $716 billion savings from Medicare built into the Affordable Care Act (ACA). They have implied to their audiences that this will affect the benefits seniors currently receive. In fact, virtually all of the proposed savings come from reductions in payments to providers, mostly hospital providers. The hospital lobby agreed to these reductions as a tradeoff for reduction of the number of uninsured resulting from other provisions of the ACA. The NY Times is reporting that if the reductions were removed, seniors would have increased out of pocket expense (estimated at $342 per year on average over the next decade) because their co-insurance is tied to the amount that Medicare pays. Of course, in typical campaign style, none of this is explained to audiences and few will read the coverage in the Times. Although vice presidential candidate Ryan had previously embraced the $716 billion in savings in his deficit reduction plan, he and Gov. Romney are referring to President Obama as having “robbed” the money from Medicare. It appears that, if elected, the Romney Administration will restore the $716 billion in reimbursements to hospitals and worry about the deficit later.

Mr. Ryan’s long-term solution to Medicare Program costs is what he calls a “Premium Support System,” which Mr. Romney has embraced. Under his original proposal, the Ryan Plan would contribute a fixed amount, adjusted for age and health status to each Medicare beneficiary, to purchase private health insurance. This system would not apply to people who are currently 55 or older. You have to ask why, if it’s such a good deal for seniors, it would not begin sooner?

President Obama’s campaign is attacking the Romney camp for destroying Medicare as we know it. Clearly, if the Premium Support Program goes through, that is a fair characterization.

Is it possible that the amount of premium support would not be sufficient to purchase the benefits now available under the current Medicare program?  According to Congressional Budget Office estimates, the Ryan Plan would spend $2,300 per year less on each new Medicare enrollee in 2030 and $8,000 less in 2050, both expressed in today’s dollars. Presumably, seniors will still need a lot of the care they now receive, so they will have to pay for it themselves out of what are likely to be decreasing retirement accounts, given all the changes being made in pension plans for those under 55.

President Obama’s campaign is attacking the Romney camp for destroying Medicare as we know it. Clearly, if the Premium Support Program goes through, that is a fair characterization. The beauty of Medicare is that everyone, regardless of income, is entitled to the same set of benefits. The cost of administering the program is relatively low and the benefits are portable if seniors relocate, unlike private coverage. On the other hand, the President has not been entirely honest with the public about the long-term sustainability of Medicare, given the need to eventually address the federal deficit. The President and his advisors are well aware of the need for fundamental changes in the system of reimbursement and delivery of healthcare to bend the cost curve. This will require some fundamental changes in the Medicare Program, probably a combination of increasing the age of eligibility going forward, but more importantly, forcing changes in the delivery system. The Obama Administration has supported measures, such as the piloting of Accountable Care Organizations, which are designed to incentivize providers to give more efficient care by sharing in the savings relative to the baseline fee-for-service costs. However, these are pilots that last for three years and no one knows what happens when the pilot ends. The ACA calls for the establishment of a panel to evaluate the effectiveness of new therapies, but its findings are not binding because of the “death panel” scare raised by critics.

Obviously, neither party has a clear, well thought-out plan to reform Medicare and the underlying healthcare delivery system.

Medicare is a very successful program and an example of government’s ability to address the needs of a population segment in a thorough and relatively cost-effective manner. In some ways, it is the victim of its own success. Not only has it provided insurance coverage to seniors, but it has financed a significant portion of the medical education system in this country. However, the structure of the program has led to significant excesses. We need political leaders who champion continued access to care, but propose comprehensive solutions to the spiraling cost issue, not just rhetoric.

I welcome your comments. —Lou Giancola

WHO WILL FIX THE HEALTHCARE SYSTEM?



Who is responsible for healthcare reform? Providers?
Insurance companies? Politicians? Federal agencies?
Illustration courtesy of Hospital Marketing Journal



Everyone agrees that the healthcare system is broken. Whether you consider the number of uninsured in our country, the fact that health insurance premiums have risen much more than general inflation, or that, despite our country having the highest per capita expenditures, we have poorer overall health than other industrialized countries, the system is failing us.  Some blame the system’s failings on the fee-for-service reimbursement system, which rewards volume rather than value. Others blame lack of planning, resulting in a system that responds not to need but to highly-reimbursed services. As a result, we have imaging centers on every corner. Still others blame the lack of any personal responsibility on the part of users for the ills of the system. The theory is that as long as insurance pays, the individual doesn’t care what it costs. No doubt all of these have contributed to the current condition of our healthcare system. The question now is who is responsible for fixing the system?

     This question arose in the midst of a meeting of HealthRight, a coalition of providers, labor, and small business that is dedicated to achieving universal coverage for residents of Rhode Island and controlling costs. The group believes that this can be achieved by centralizing the purchasing of all healthcare through the Healthcare Exchange being implemented in our state. We all know that achieving these goals through the Exchange is a long shot. In the meantime, there are others, such as the largest insurer in Rhode Island, Blue Cross, feeling immense pressure from employers to reduce costs. Blue Cross, along with other insurers doing business here in RI, has been helped by guidelines issued by the Health Insurance Commissioner that limit the annual reimbursement increase Blue Cross can give hospital providers without seeking an exception. In a recent dispute with a hospital provider, Blue Cross cited these guidelines as a rationale for not granting the desired increase. The hospital mounted an aggressive and expensive public relations campaign.  One member of the HealthRight group accused Blue Cross of “playing God” because the provider claimed that failure to achieve the requested increase would result in the hospital’s demise. There has been considerable debate within the state about how many hospital beds are required and there is probably some truth to whether this particular provider can survive, with or without the requested increase.

     In my mind, this dispute just gives rise to the larger issue of who is responsible for fixing the system. In this case, the insurer is simply trying to control increases in hospital costs, but insurers will be seeking bigger changes in the system, including global reimbursement (aka, capitation).  Do the insurers have the right or the responsibility to drive the change? If not, who should? Will the providers reform the system on their own? (Unlikely!) Will the Legislature and Executive Branch mandate change through the establishment and implementation of clear policies, as seems to be happening in Vermont? (Most people are skeptical about the likelihood of all parties reaching a consensus!) Will the Exchange become strong enough to drive the change? (It’s too early to tell.) Will the newly established Comprehensive Health Planning Advisory Council take control and drive the change?

     Some institution or body needs to take control if we are going to have a system that improves overall population health and makes healthcare affordable for all our citizens.

     Who do you think should take the lead in fixing our broken healthcare system?  As always, I welcome your comments. —Lou Giancola

HOSPITAL REIMBURSEMENT—THROUGH THE LOOKING GLASS



Deciphering hospitals bills can drive
people a bit bananas--even those who
understand how the healthcare
system works.



When we orient new hospital board members, all of whom are bright, capable individuals, often with lots of business experience, they are usually amazed at the complexity of hospital reimbursement or payment systems. They are accustomed to the way the majority of businesses operate:  goods or services are provided; a bill is generated reflecting certain fixed prices; the customer then pays as invoiced. That’s what most of us experience on a daily basis. I go to the grocery store to buy bananas, the checkout clerk weighs them and translates the price per pound into a price for the bunch, and I pay that amount. I should also mention that if I have forgotten my wallet, I can’t take home the bananas. The store has no obligation to meet my need for bananas, and even though I go to the same local grocery store all the time, they haven’t chosen to extend me credit.

Contrast the transaction that takes places for my purchase of bananas to what happens during a visit to the Emergency Department at South County Hospital or virtually any hospital in the country. The patient arrives and receives a medical assessment before there is any discussion of the ability to pay for services. Our obligation, consistent with our mission, is to address the patient’s chief complaint and ask questions about how he or she will pay for the service later. At some point during the stay there is a conversation about whether the patient has insurance. If so, we immediately extend “credit” even though we aren’t sure the insurer is obligated to pay and, in many cases, we don’t even know how much the hospital will be paid for the service. If we know the patient’s insurance requires a co-pay (a fixed amount the patient is obligated to pay for a given service), we attempt to collect it at the end of the visit. If the person has forgotten to bring cash, checkbook, or credit card, we agree to send a bill. (We hope they agree to pay us.)

At this point the process gets kind of complicated. The patient’s visit can involve a myriad of services in addition to the doctor’s assessment and treatment plan. Depending on the complexity of the presenting problem, a dozen laboratory tests, one or two imaging exams (X-ray, CT, MRI), and the administration of intravenous drugs. The charges (prices) for all those services is entered into the hospital’s billing system. The charges, however, have little or no bearing on what the hospital will eventually be paid for the emergency visit. In most cases, they don’t even relate to how much the service cost us to deliver. Nonetheless, the hospital is required to assign a unique code or identifier to each service, used by most insurers—the federal government for Medicare and the state government for Medicaid. (One of the challenges is meeting the specific requirements of each insurer or government payer. Sometimes it feels like they’ve made it complicated so they can find an excuse to delay payment…)

Once all the charges are assembled, the hospital submits a claim to the insurer or government payer. For people without insurance, a traditional bill is sent with each of the itemized charges, similar to your grocery receipt but usually more difficult to understand. The commercial insurers, assuming the claim is properly completed and the patient’s coverage is verified, then pays the “allowable amount” less whatever the patient is obligated to pay. The allowable amount can be anywhere from 10 to 70 percent of the charge and is based on what each hospital negotiates with each insurer. It is not unusual to have very different payment rates for the same service from different insurers. Also, rates of payment vary significantly from one hospital to another for the same service. A few years ago, the Boston Globe published a series of articles that showed some hospitals receiving 100 percent more than others from an insurance company for the exact same procedure or diagnostic imaging exam. Most insurers prohibit hospitals from disclosing what they are paid for a given service. The insurers have defended the lack of transparency whenever hospitals have protested; they do not want to be pressured to reimburse all hospitals at the highest rate for any given service. The government payers start with the same basic rate for all services, but adjust their payment to each hospital based on whether the hospital is involved in graduate medical education and the relative wages in a given geographic area. These adjustments have been under perpetual study ever since Medicare’s inception in 1965.

Does all of this sound confusing? It should. Hospitals employ reimbursement specialists to negotiate better rates and to maximize payment from insurers and government agencies. Insurers employ adjusters to find problems with claims, which often delays payment. The government employs contractors who audit hospital payments and are paid a percentage of the amount they are able to take back from hospitals because they didn’t comply with the ever-changing rules. The whole process is expensive and clearly does not add value to patient care. I often marvel that I can go anywhere in the world and pay for something with my American Express card, but a medical insurance card doesn’t even have a magnetic strip to provide our hospital system with demographic information. I’m hoping this system of payment for healthcare can be simplified during my lifetime.

I look forward to your comments. --Lou Giancola

THE CRITICAL ROLE OF “CULTURE” IN QUALITY AND PATIENT SAFETY

Dr. Lucien Leape and his colleagues, in the July issue of Academic Medicine, decry the slow pace of improvements in patient safety in our healthcare system. After considering the various causes, they conclude “that the fundamental cause of our slow progress is not lack of know-how or resources but a dysfunctional culture that resists change.” The authors delve into the different forms of disrespect that negatively affect the culture of healthcare organizations, resulting in conditions that threaten patient safety. Although the article draws many of its examples from academic institutions, I believe the underlying theme of the importance of culture on patient safety and quality is relevant to all provider organizations, large or small, academic or community-based. I have spent more than 40 years in healthcare, mostly in leadership positions. I know how my own behavior has contributed to a positive environment that promotes teamwork and motivates individuals to focus on patient safety and how, more times than I care to admit, it has had the opposite effect.

.

Aretha Franklin singing her iconic hit,

"Respect," -- a sentiment that fosters a

culture of patient safety and quality care.

As I reflect on my experience, I know that many people in healthcare are suspicious of leadership and tend to think of us as primarily focused on financial outcomes. They think that we have a different value system. They see themselves as genuinely caring about the patients and perceive that leadership is focused on productivity and the bottom line. That disconnect can lead to a sense that people’s contributions to the care of patients are not respected or valued. This feeling can be exacerbated when those departments that make greater contributions to the financial well-being of the organization, often for historical reimbursement reasons, are held up as paradigms for everyone else and are perceived to have more influence with leadership. I call it the “you give them everything” syndrome. The point is that leadership has a big impact on culture and historically we have not provided the right emphasis. This point was driven home in a meeting with our hospital medicine group where one of the members complained that all they hear from me is how expensive their department is, not what they contribute to our 98 to 100 percent scores on best practice for heart attacks, congestive heart failure and stroke. Unfortunately, he was right.

My experiences have led me to take a different approach to my communication with hospital staff and physicians. Now when I present updates on how we are doing, I talk about quality and patient safety first, the patient experience second, and the finances last. I emphasize that we’re here for the patients, not to make money. The financial performance is the enabler for the first two. Obviously, I haven’t stopped being concerned about the dollars, but I recognize that most people in our organization relate first to quality and the patient experience. They want to know that leadership really is concerned about the care being provided. They also want to know that we listen when concerns are raised about impediments to providing the level of care and service patients deserve. When we’re genuinely aligned, it’s easier to have dialog around some of the other challenges faced by the organization.

Many factors go into in creating an organizational culture that focuses on patient safety and quality, but leadership can make a big difference by recognizing and communicating its importance.

I look forward to your comments. —Lou Giancola