Ray Lefton

As we have painfully relearned with the recent economic crisis, greater oversight is sometimes needed against good ole American ingenuity and/or greed. Blame the free market economy and Americans itching to "supply" the "demand" and make a profit in the process. No one wants to slow down innovation. But in health care, an organization that is only focused on its own needs can produce unanticipated, harmful results. As providers, we need to encourage more planning and cooperation on a regional level to ensure that the healthcare needs of all Americans are met with the fewest dollars.  

Encourage Regional Planning

Five counties in southeastern Pennsylvania are now home to more heart programs than the entire state of New Jersey, which has double the population. Community hospitals have seized upon open heart surgery-particularly bypass and angioplasty operations-for the status and money these services generate, and for the range of other life-saving procedures that cardiac programs make possible.

As community hospitals duplicate services traditionally handled by teaching hospitals, they are financially harming our safety net hospitals. Even as teaching hospitals lose volume to community hospitals, they must continue to maintain the high overhead costs associated with their teaching missions and commitments to the indigent. 

We also need to ask whether patients are receiving the same level of care for specialty procedures at community hospitals as they are at teaching hospitals. In general, surgeons at teaching hospitals operate on more patients and, thus, have more experience. A study in JAMA reported that states with a free market in open heart programs had a 21 percent higher death rate than states that limit expansion (Vaughan-Sarrazin, M.S., et al., "Mortality in Medicare Beneficiaries Following Coronary Artery Bypass Graft Surgery in States With and Without Certificate of Need Regulation," JAMA, Oct. 16, 2002).

Apart from quality issues, the rush for hospitals to provide high-demand services and technology without any regard to regional planning drives up overall healthcare costs. For example, the emergence of proton beam therapy, the latest advance in radiation treatment, has started a new medical arms race as hospitals try to take advantage of the prestige and the profits associated with these machines. A 222-ton accelerator and the facility to house it can cost more than $100 million. In Philadelphia, the University of Pennsylvania is building a proton beam program and Jefferson University Hospital has announced intentions to do the same. Will this spur the other nearby teaching centers to get a proton beam, too?  

This very issue is being played out in Michigan. A consortium of six Michigan health systems has created a joint venture to bring this emerging cancer treatment to the state's residents. Independent of the consortium, Beaumont Hospitals has received approval from the Michigan Department of Community Health to develop the state's first proton therapy center for $159 million, and the center is expected to be operational by 2010. Estimated projections show that Michigan will need one proton therapy unit for every 10 million people by 2020. That means the state can support one proton unit based on current population projections.

Some experts say that physicians will be under pressure, once proton units are built, to guide patients toward proton therapy when a less costly alternative might suffice. Also, recognizing the potential of this technology, much venture capital money is being invested in hopes of creating less costly, smaller units in the price range of $10 million to $20 million for community hospitals. The science for smaller units is still unproven. 

Without some intervention, the medical arms race will continue. Clearly the question exists whether the problem can be solved through free market forces or whether greater regulation, such as imposed in New York under the Berger Commission, is the solution. The nonpartisan Berger Commission was created by former Governor Pataki and the New York State Legislature to undertake an independent review of healthcare capacity and resources. The commission wants to eliminate 4,200 hospital beds and  3,000 nursing home beds across the state, and to have 48 hospitals restructured or merged and nine hospitals formally shuttered. The commission claims the plan will save about $1.5 billion per year over the next decade, through reduced costs and reinvestment of savings in health care. As expected, there has been much political push back, and questions remain whether the plan's aims will be achieved. Moreover, some government relief may be required from an antitrust perspective to facilitate cooperation. 

The bottom line: Certificate of need (CON) laws as they currently exist are not cost-effective and do not reduce overall costs, according to an analysis for the Commission on Rationalizing New Jersey's Health Care Resources. CON laws are intended to prevent competing hospitals from delivering more services within a market than the market can bear, thereby protecting the hospitals' margins. However, in New Jersey, average hospital operating margins in 2007 and for the first six months of 2008 were less than 1 percent, even with many payers paying well above Medicare rates. Upwards of 48 percent of New Jersey hospitals were losing money from operations at the midpoint of 2008. 

Implications: Many healthcare experts believe market forces can eliminate inefficient providers and expensive duplication, but this approach may take years to play out-and at what cost? Ultimately, stronger providers will survive, and weaker ones will see their assets degrade. This may lead to access issues in rural and poorer, inner-city communities. Clearly state planning doesn't work, and the risk of leaving it to market forces is too great. As health care is a local/regional phenomenon, I would suggest that regional planning boards be developed that work under state/federal guidelines and a set of mandated guiding principles.  

Divert Nonurgent Care to Retail Clinics

Utilization data show that emergency department (ED) visits continue to rise and show few signs of slowing. According to the National Hospital Ambulatory Medical Care Survey, there were 110.2 million ED visits in 2004, and more than 25 percent were for nonurgent or unknown causes. We need to better educate patients who overuse the ED, reduce barriers to primary care access, and successfully divert nonemergency ED visits to more appropriate, lower-cost venues.

Retail health clinics are an obvious choice. All major health plans are adding these clinics to their networks to improve consumer convenience and for potential savings. A number of retail clinics have found a real niche in grocery stores, pharmacy chains, and mass merchandisers. Instead of a physician, patients see physician extenders who are aided in their diagnosis by a computer program. Retail health clinics are generally open when physician offices are closed. If there is a wait, patients are given a pager, allowing time to shop while waiting to be seen in the clinic.

The bottom line: Consumers and insurers want access to convenient and reasonably priced services.  

Implications: Hospitals and their medical staffs need to find a way to collaborate and develop convenient, low-cost ways to offer nonurgent care; otherwise, they will be inviting outsiders to compete with them.


Ray Lefton, DDS, FHFMA, CPA, is vice president, finance, Princeton HealthCare System, Princeton, N.J., and a member of HFMA's Metropolitan Philadelphia Chapter (rlefton@princetonhcs.org).


See Lefton's June column for the complete list of 14 strategies he believes will bring about meaningful health reform.


Publication Date: Saturday, November 01, 2008

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