Ray Lefton

Broad acceptance exists that the current healthcare system is not sustainable. U.S. healthcare spending is expected to nearly double by 2017, reaching $4.3 trillion and consuming 19.5 percent of gross domestic product. According to one widely stated figure, $1,500 is embedded in the cost of every General Motors car to cover medical expenditures for the company's active and retired workforce.

Now is the time to act before the cost of health care begins to erode our standard of living. Below I present 14 ideas for potentially reducing or arresting healthcare expenditures. All of these ideas will require cooperation and hard work from all the parties that influence healthcare policy, processes, and costs. We must insist upon changes-from our elected officials as well as ourselves in the healthcare community-that will have major impacts on cost, quality, and access to health care.

  1. Adopt evidence-based medicine
  2. Move malpractice cases out of civil court
  3. Align hospital and physician reimbursement
  4. Develop healthcare IT interoperability
  5. Close the loop in electronic prescribing
  6. Limit drug promotions and increase price competition
  7. Standardize claims processing
  8. Create a separate risk pool for costly patients
  9. Eliminate unfunded mandates and time limit laws
  10. Encourage regional planning of health services
  11. Divert nonurgent care to retail clinics
  12. Eliminate physician conflicts of interests
  13. Increase personal accountability for lifestyle choices
  14. Promote better disease management via a primary care model

Adopt Evidence-Based Medicine

Much of clinical medicine remains empirical, and every day practice is characterized by wide variation that has no basis in clinical science, bringing financial repercussions and hindering best outcomes. In recognition of this fact, the Agency for Healthcare Research and Quality (AHRQ) was created in 1997 to promote evidence-based practice. AHRQ became a "science partner" with private and public organizations in their efforts to improve the quality, effectiveness, and appropriateness of health care by synthesizing the evidence and facilitating the translation of evidence-based research findings.

Currently, almost 2,000 national guidelines exist. These guidelines promote standardized medical care, which means that patients with the same diagnosis, same level of disease, and similar demographics receive the same treatment, giving the patient an outcome that is best for the circumstances of the disease process. With healthcare providers finding themselves under increasing levels of financial risk, it is becoming increasingly important to provide and document appropriate, cost-effective, high-quality care that would reduce variation, untoward events, lengths of stay, and unnecessary tests.

Crucial to the development of evidence-based medicine is a commitment of resources and the appropriate infrastructure-the necessary people and processes combined with a clinical decision support system that is able to integrate patient demographic and clinical information in a coordinated manner, making it easier to monitor and document important aspects of care, support pathway compliance, and identify variations in patterns of care.

Based on my experience at Princeton HealthCare System, the IT investment involved in developing a comprehensive, integrated program, which includes CPOE, clinical documentation, and electronic medical records, is estimated at upward of $10 million for a typical 300-bed acute care facility with annual ongoing costs of $1.5 million. This is consistent with other bids in the marketplace. The high costs and limited data on financial benefits have been major barriers to adoption.

What is undeniable is that the adoption of evidenced-based clinical guidelines will improve quality and safety measurements, including mortality and morbidity rates, infections, readmissions, adverse drug events, and pressure ulcers. Any one of these events adds thousands of dollars to a hospital stay. Reports have been published that clinical pathways reduce patient costs by more than 10 percent compared with like cases that are not on a pathway (Rosenstein, A., "Measuring the Benefits of Clinical Decision Support: Return on Investment," Health Care Management Review, Spring 1999.)

Although pay for performance and value-based purchasing is being piloted as a way to encourage quality improvement, I have reservations about the push to give providers incentives to do what is expected. Also, some ambiguity exists about whether performance-based systems can improve quality of care without increasing expenditures.

The Centers for Medicare and Medicaid Services, the American Hospital Association, and the American Medical Association should reach consensus on the adoption of evidenced-based medicine. Hospitals could then use this consensus as a basis for some form of quality/economic credentialing. Requiring physicians to comply with clinical guidelines is perhaps a better way to ensure that hospitals achieve adequate financial performance. Under this approach, however, hospitals and medical staffs should be provided legal protections during the transition from an open medical staff to one that is subject to such credentialing.

The bottom line:  As consumerism drives greater transparency in healthcare pricing and quality, hospitals must be able to demonstrate superior outcomes and value.

Implications:  Hospitals must work collaboratively with their medical staff leadership to develop a sense of urgency, commit the necessary resources, and develop the infrastructure and processes to support evidence-based medicine. Qualifications for medical staff privileges are fairly liberal, and hospitals may need to consider some form of quality and economic credentialing (for example, medical staff members are obliged to implement certain patient safety practices).   

Standardize Claims Processing

The government has historically reported Medicare administrative costs at 2 percent to 3 percent. Similar administrative costs for private insurance approximate 9 percent. However, when sales commissions, profits, and taxes are included in these estimates, then administrative costs approximate 17 percent ("Medicare's (True) Administrative Costs," Healthcare Economist, July 27, 2006). On the hospital provider side the cost to collect exceeds three percent. (Hammer, D., "Performance Is Reality. How Is Your Revenue Cycle Holding Up?" hfm, July 2005).  The cost of collect is defined by patient access, patient financial services, and agency expense divided by cash.

The intent of the Health Insurance Portability and Accountability Act (HIPAA) was to provide administrative uniformity and simplification. However, every health plan has its own unique claims system, contracts, and precertification process, and it is ever more difficult for hospitals to keep pace with this diversity. Moreover, each state has its own set of insurance rules with respect to prompt pay provisions and appeals. Hospitals have their own shortcomings that force them to continuously invest in more sophisticated billing and collection systems to stem the increasing cost of collections.

The bottom line:  Despite the intent of HIPAA, no consistency exists among payers on any of the elements in which a medical service is authorized or a claim is adjudicated. Providers must commit an inordinate amount of resources in their efforts to manage revenue cycle processes and get paid correctly. No two provider contracts are the same.

Implications:  The payer and provider community must move with greater expediency toward national standards with respect to claims processing, coding standards, and insurance rules. If payers and providers together are unable solve the problem, then a less palatable solution may be imposed upon them.

Move Malpractice Cases Out of Civil Court

Between 2000 and 2003, malpractice premiums rose 60 percent, an increase that is attributed to the number and size of plaintiff awards (Baicker, K., et al, "Malpractice Liability Costs and the Practice of Medicine in the Medicare Program," Health Affairs, May/June 2007). The supply of physician specialists declined, clinical programs (such as obstetrics) closed, and hospitals saw their operating margins decline. In response, many states implemented some reform measures. Although this crisis has abated to a degree, no national reform has occurred.

Medical malpractice insurance premiums account for approximately 1 percent of the nation's healthcare spending, and actual malpractice judgments amount to 0.5 percent (Kendal, D., "Health Care Costs and Malpractice Report," The American Interest, January 2008). However, a far bigger impact on overall costs is the resulting fear among physicians of being named in a malpractice suit--and how that affects the way medicine is practiced.

What physicians are comfortable doing in the current legal environment is practicing defensive medicine; the extra tests and procedures they feel compelled to order serve as liability shields. A 2005 study found that almost all physicians order additional tests and performed additional diagnostic procedures in response to growing malpractice costs (Studdert, D., et al, "Defensive Medicine among High-Risk Specialist Physicians in a Volatile Malpractice Environment," JAMA, June 2005).  This survey also reported a substantial increase in the use of imaging technologies, as well as a reduction in major surgeries among certain patient populations.

  Providers should work with and galvanize their legislators to change the current system. However, most providers believe the system is the problem, rather than accepting their fair share of the responsibility. To win over legislators and the public, physicians must be willing to compromise and adopt best practices.

Align Hospital and Physician Reimbursement

How providers are paid by different payers for the same service continues to remain a patchwork. A typical hospital is paid under many different payment methodologies for the same service (e.g., case rate, per diem and charges, capitated, percent of premium, etc). Outpatient services are paid on ambulatory payment groupings, fee schedule, or charges. And physicians are mostly paid on a fee-for-service basis, often receiving more payments when more services are provided.

The lack of consistency in provider reimbursement results in misaligned and divergent financial incentives. In addition, many hospitals are subject to stringent utilization management guidelines where care is denied for lacking medical necessity; yet the physician continues to be paid.

One possible solution is reimburse both the hospital and attending physician on a risk-adjusted, prospective basis similar to what is done under Medicare severity-adjusted diagnosis-related groups. The attending physicians would be paid a fixed rate and receive additional payments after a day outlier threshold is exceeded. Assuming malpractice reform is implemented (reducing the need for unnecessary consults), physicians can be consulted and paid if certain diagnoses exist. This approach is similar to what the Centers for Medicare and Medicaid Services does under local medical review procedures or national coding determinations. Medicare will pay for many tests and services only if the appropriate ICD-9 diagnostic code is documented and included on the bill.

The bottom line:
  Payers benefit when fewer services are provided, and providers mostly benefit to provide more. In the case of hospitals, it depends on the particular payer arrangement. Medicare is currently evaluating a number of pay-for-performance initiatives to encourage improved quality of care in all healthcare settings where Medicare beneficiaries receive their healthcare services. The alignment of hospital and physician reimbursement is key to reducing overall hospital costs.

Implications:  Rewarding physicians based on adherence to evidence-based practice may greatly facilitate the reduction of unnecessary hospital costs and promote better outcomes.  

Eliminate Physician Conflicts of Interests

Despite anti-kickback, fraud and abuse, and Stark laws, many arrangements still exist where physicians are able to refer patients and gain economically. Often hospitals' biggest competitors are physicians on their own medical staffs who perform diagnostic and therapy services. Radiologists owning imaging centers and surgeons owning ambulatory surgery centers are commonplace. Also, there has been a proliferation of companies that will bring turnkey diagnostic operations (staff, equipment, etc.) to a physician's office, allowing the physician to bill for both the technical and professional components without having to come up with any capital investment.

A recent study reports that referrals to physician-owned hospitals, surgery centers, and imaging facilities have increased considerably in the past decade, resulting in higher utilization of services. The largest leap in referrals was for advanced imaging tests, such as positron emission tomography scans, computed tomography scans, and magnetic resonance imaging scans. The study concluded that self-referral indeed increases utilization of healthcare services, but existing payment policies encourage referrals to physician-owned facilities (Casalino, L.P., Physician Self-Referral and Physician-Owned Specialty Facilities, Robert Wood Johnson Foundation, The Synthesis Project, June 2008).

The regulations generally allow for these arrangements provided the physician's financial interest is not related to the volume of patients referred to the facility and the patient is given prior written notice of the physician's financial interest. Also, no limitations exist if services are performed within the physician-own facilities (or part of larger group).

Countervailing arguments are that physician-owned services are more consumer oriented and can be performed more efficiently being separated from hospital bureaucracies. Due to their lower cost structure and/or negotiating leverage they are often paid less than hospital-based services. In many markets, competing centers create underutilized capacity at the hospital, increasing hospitals' costs.   

The bottom line:  There is no doubt that conflicts exist when physicians are able to gain financially from referring to services in which they have an ownership interest--a practice that can also lead to overutilization. If true savings are to be achieved by prohibiting physician owned services, hospitals must be willing to compromise and accept lower reimbursement levels, which should not hurt margins if excess capacity exists.   

Implications:  Hospitals should lobby to expand the list of designated services as well as what services are exempt (especially if provided within a large group setting) within the Stark and anti-kickback statutes. Without some relief, hospitals will continue to lose high-margin business to their medical staffs.


Develop Healthcare IT Interoperability

In 2004, the Office of the National Coordinator for Health Information Technology (ONC) was established with the goal for most Americans to have access to an interoperable EHR by 2014. Broad consensus exists throughout the provider community and across the political landscape. EHR proposals are part of the platform of both presidential candidates. Senator Obama is committed to investing $50 billion toward the adoption of EHRs and other health IT, and Senator McCain supports the rapid deployment of IT, allowing physicians to practice across state lines.

As noted on the ONC web site (www.hhs.gov/healthit), health IT will allow for comprehensive management of medical information and a secure exchange between healthcare consumers and providers. Broad use of health IT will accomplish the following.

  • Improve healthcare quality (e.g., remind physicians about appropriate preventive care).
  • Prevent medical errors (e.g., identification of harmful drug interactions and allergic reactions to prescribed medicines).
  • Reduce healthcare costs (e.g., reduce duplication of diagnostic tests).
  • Increase administrative efficiencies.
  • Decrease paperwork.
  • Expand access to affordable care.

Interoperable health IT will improve individual patient care, but it will also bring many public health benefits, including the early detection of infectious disease outbreaks around the country, the improved tracking of chronic disease management, and the evaluation of health care based on value enabled by comparable price and quality information.

Clearly, the creation of a national oversight organization is prudent to develop nationwide interoperable health IT standards and infrastructure. Given the magnitude of the potential government subsidies involved, the greatest minds from the private and public sectors must be brought together with the sole agenda of creating the best systems without concern for self-interests. Moreover, this oversight organization must have the authority to mandate compliance and recommend affordable systems to encourage market-led adoption and ensure that the privacy and security of health records are protected at all times.

The bottom line: IT investment continues to explode, yet issues still exist with respect to interoperability and the piecing together of disparate systems. Two recent studies, one by the RAND Corporation and one by the Center of Information Technology Leadership, have estimated that about $80 billion in net annual savings is potentially attributable to adopting healthcare IT.  A more recent study released by the Congressional Budget Office (CBO) indicates that, in certain settings (e.g., integrated health systems), healthcare IT can result in savings if other steps in the broader healthcare system are also taken (CBO, Evidence on the Costs and Benefits of Health Information Technology, May 2008).

Although health IT may be currently oversold in terms of its economic utility, much momentum behind this initiative exists. For health IT to be successful, greater federal leadership and resources must be committed in this area to fully leverage the power of automation and EHRs. Also, affordable or heavily subsidized minimalist solutions must be made available for cash-strapped providers.

Implications: Providers with deep pockets need to set the stage and demonstrate that savings can be achieved with sufficient investment, compliance, and the adoption of best practices. We need to support the case that some level of subsidization by the government can really have an impact. How well health IT lives up to its potential depends in part on how effectively financial incentives can be realigned to encourage its optimal use.


Closed-Loop Electronic Prescribing

Although electronic prescribing is related to EHRs, the reduction of adverse drug events deserves special attention. Strategies to reduce medication errors have been a high priority for the Institute of Medicine, The Leapfrog Group, National Quality Forum, and the Joint Commission. Studies have shown that preventable adverse drug events number in the hundreds of thousands each year, resulting in billions of dollars in avoidable healthcare costs (Mahoney, C., et. al, "Effects of an integrated clinical information system on medication safety in a multi-hospital setting," American Journal of Health-System Pharmacy, September 15, 2007). To further extend and maximize the reach of clinical information systems, decision support systems, and computerized physician order entry, providers need to develop closed-loop electronic prescribing and administration systems.

Medication order entry systems that are widespread in outpatient settings need to be adopted and standardized to the hospital environment and connected to hospital pharmacy systems. Doing so will improve detection for drug allergies, curtail adverse drug interactions and excessive dosing, improve therapeutic drug monitoring, and prevent unclear and incomplete orders. Smart technology would place needed information, including alternative drug choices and costs, at physicians' fingertips. Furthermore, medication order entry systems would facilitate generic drug substitution (when available), requiring physicians to document why a brand-name drug is necessary.

Other components of a closed-loop system that would ensure the right drug is administered to the right person at the right time include automated dispensing, bar code patient identification, and electronic medication administration record. Moreover, as part of a larger health IT initiative, hospitals, pharmacy benefit managers, and physicians must learn to talk to each other by accessing and populating a central repository of patient information; this would greatly facilitate the drug reconciliation process, reduce adverse drug events, and curtail the overpricing of drugs across all environments.   

The bottom line: Most adverse drug events can be prevented by hospitals making the necessary investments and adopting best practices. Mandating compliance from all those involved in the process will drive up a quantifiable ROI, further justifying the initial investment and ongoing costs.

Implications: Effective Oct. 1, 2008, the Centers for Medicare and Medicaid Services will begin to reduce payments to hospitals for 11 conditions that occur during hospitalization. This list will increase over time, and hospitals will no longer receive higher reimbursement associated with untoward events.

Create a Separate Risk Pool for Costly Patients

Introduce insurance reform that adopts some of the approaches taken by The National Flood Insurance Program, which is administered by various insurance companies but funded by the federal government. The components of this program are flood insurance, flood plain management and flood hazard mapping for 20,000 high risk communities across the United States.

Placing patients that are "high hazard"-meaning patients with high-cost, chronic needs or patients with catastrophic needs (e.g., low birth weight baby, multiple trauma, severe burns, severe brain and spinal cord injuries, terminal conditions and multiple co-morbidities)-into a large, more predictable insurance pool will result in less risk loading. In addition, less cross subsidization would be needed to manage the general population. Also, insurers and/or companies with proven expertise in managing these clinically complex types of patients (and their families) and controlling losses and costs would bid for managing these patients.  

The bottom line:
  Health care should sometimes look to other industries for ideas on how to solve complex problems.

Implications:  Moving high-cost patients into a separate risk pool would result in more predictable financial and medical underwriting, making insurance more affordable and accessible to small groups and individuals.

Eliminate Unfunded Mandates and Time-Limit Laws

State mandates run from a low of 14 in Idaho to a whopping 63 in Minnesota. New Jersey recently passed a law requiring mothers to be evaluated for postpartum depression prior to discharge. Every state also requires insurers to cover certain medical services and providers. These services vary from essential services, such as emergency department visits, to marginal services, such as acupuncture, massage therapy, and pastoral counseling. Some covered medical services can be considered lifestyle choices, such as when an individual prefers to take a drug rather than modify his or her diet. This was an issue in the treatment of acid reflux disease before the low-cost, generic drug omeprazole (Prilosec®) became available.

Forcibly expanding the scope of basic insurance plans might be a great deal for massage therapists and other special interest health professionals, but it does so at the cost of forcing millions of people to pay for procedures or services that they wouldn't otherwise use. The rules fall hardest on those least able to afford them, particularly small businesses and individuals buying health insurance in the open market. Big companies and other firms that have the resources to self insure can escape these state mandates.

One way to escape all of these expensive mandates and regulations would be for Americans to be allowed to purchase health insurance policies from insurers in states that have more sensible health policy regulation. For years, U.S. Rep. John Shadegg, R-Ariz., has been promoting legislation that would allow Americans to do just that, and his ideas have been incorporated into the McCain healthcare plan, which advocates that families should be able to purchase health insurance nationwide, across state lines.

Alternatively, we might consider setting national standards that allow patients to purchase additional coverage for services such as acupuncture, instead of a one-size-fits-all policy dictated by local lawmakers.

Similar to unfunded mandates is the government tendency of passing laws that do not evolve with the times. Take the Employee Retirement Income Security Act (ERISA) of 1974. One of the many elements of ERISA was to set standards for self-funded health and welfare plans for workers. ERISA plans fall outside the jurisdiction of many state regulations with respect to prompt payment, provider appeals, and other administrative-related activities. This lack of standardization and consistency creates much inefficiency and confusion driving up costs.

Other laws that need to be evaluated include antitrust laws, especially related to not-for-profits as they become more like monopsonies. Not-for-profit status and similar hallmarks of good intentions are largely irrelevant to antitrust analysis and, sometimes, result in a potential barrier for organizations to consolidate.

The bottom line:  Unfunded mandates are very costly to support, and some of them have a marginal impact on improving care.

Experimentation is often good, especially on a state level; however, any mandates should be time limited since it is often difficult to repeal something once it becomes law. Similarly, many federal laws impacting the administration of healthcare benefits should be time limited and subject to renewal by a nonpartisan governmental agency, such as the Department of Health and Human Services' Prospective Payment Assessment Commission.

Limit Drug Promotions and Increase Price Competition

According to the Centers for Medicare and Medicaid Services, drug spending is expected to accelerate from $231 billion projected in 2007 to $516 billion in 2017, unless some intervention occurs. Possible solutions include allowing Americans to buy medications from other developed countries or repealing the ban that prevents the government from negotiating with drug companies.

Other solutions include the promotion of generic drugs in government programs and prohibiting drug companies from keeping generics out of markets. In 2005, drug companies spent about $30 billion in promotion, ranging from sample distribution to television ads. The fastest growing facet of drug promotional spending is attributed to direct-to-consumer advertising, which was approved by the Food and Drug Administration (FDA) ten years ago. (Donahue, J.M., "A Decade of Direct-to-Consumer Advertising of Prescription Drugs," New England Journal of Medicine, Aug. 16, 2007).

Such advertising is banned in Canada and the European Union--with good reason. Studies have shown that advertising encourages inappropriate use of medications and overuse; it also drives up class wide sales with drug classes and overall drug spending (See, for example, Hollon, M.F., "Direct-to-Consumer Advertising: A Haphazard Approach to Health Promotion," JAMA, April 27, 2005).

Under discussion is a recommendation to Congress by a special Institute of Medicine panel to limit direct-to-consumer drug advertising for the first two years after FDA approval, or until health professionals have been sufficiently educated and there has been additional time to evaluate uncertainties about risks and benefits of new drugs. It's not clear such a move would be legal. Alternative strategies would be to expand decision support and medication order entry systems, which would take discretion away from the physician and deflect pressure from the patients while placing more of the decision making on the pharmacy benefit managers, assuming they manage their formularies transparently and are subject to external audit.

Currently, most healthcare plans require high copayments for brand names when a generic is available. Another solution would be for the drug plan to reimburse only to the cost level of the generic equivalent (when available).

The bottom line:  The pharmaceutical companies may see the handwriting on the wall and use greater restraint and self regulate (hurting short-term profits) to prevent a greater public backlash. Perhaps, in return, they can ask for some concessions from the FDA in providing greater assistance to bring new drugs to market faster (provided the FDA is given more resources to ensure a proper review process) or extending drug patent lives.

  Once again, it's all about trying to find the right balance between regulation and free market capitalism.

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). This is not surprising, given that researchers have documented the link between the volume of procedures performed and quality for more than 20 years.

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 $10M to $20M 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 a rational, independent review of healthcare capacity and resources. The Berger Commission wants to eliminate 4,200 hospital beds across the state (7 percent of total capacity). Some 3,000 nursing home beds would also vanish. Forty eight hospitals would be restructured or merged, and nine hospitals would be formally shuttered. The Berger 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 ultimate aims of the Commission 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 one percent, even with many payers paying well above Medicare rates. Upwards of 40 percent of New Jersey hospitals lost money from operations in 2007, and 48 percent are losing money from operations at the midpoint of 2008.

Many healthcare experts believe market forces can and would eliminate inefficient providers and expensive duplication; however, this approach may take many 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 such, an alternative approach must be conceived. 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. In addition to better educating patients who overuse the ED and reducing barriers to primary care access, we need to 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 and set up shop 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 in outsiders to compete with them.

Increase Personal Accountability for Lifestyle Choices

Hardly a day goes by without a news story on the healthcare impact of obesity, poor eating habits, smoking, recreational drug use, inactivity, or high-risk activities. Should individuals be required to pay a higher premium for making certain lifestyle choices?

There is a precedent for this with life insurance underwriting: Many insurance companies require applicants to undergo medical exams and submit to blood tests before getting a life insurance policy. Such an approach would have to be closely monitored by state agencies to prevent discrimination. Patients who are unhealthy for no fault of their own (e.g., congenital problems, sickness, predisposition) should not be penalized. Moreover, although passing the true cost on to the beneficiary based on actuarial data might seem fair, it may also result in making insurance unaffordable, defeating the purpose of universal coverage and making such an approach unviable.

One practical solution would be to design a system where health insurance is priced at an overall higher rate, and individuals with healthy lifestyles would receive a discount on their premium. Discounts on insurance are already the paradigm for auto insurance (i.e., air bags, anti-theft devices, good driving records). To avoid HIPAA issues, this would have to be a voluntary program. Individuals and family members might complete a questionnaire about their lifestyle and health habits during their annual physician appointment.

The bottom line: Penalizing or giving patients incentives about their lifestyle choices is already happening on a limited basis. In December 2007, The Wall Street Journal reported on a Geneva, Ind.-based bank that raised employee health insurance deductibles from $500 to $2,500, and then the offered $500 credits to employees who passed screenings for cholesterol, body mass index, blood pressure, and tobacco. These types of programs raise a host of legal, moral, and practical questions. However, without some level of personal responsibility, the Medicare hospital trust fund will run out of money as projected in 2019, taxes will increase, or people will be required to work longer before becoming eligible for Medicare.

Implications:  More education is needed, but incentives and penalties must be considered to shape personal behaviors. We will likely begin seeing more employers consider a person's health profile as part of the preemployment hiring process.

Improve the Coordination of Care for High-Risk Patients

The current healthcare delivery system is fragmented, increasingly complex and disjointed, and primarily designed around inpatient care. The traditional physician payment structure rewards specialization and the provision of more care, rather than rewarding more coordinated care. However, the healthcare industry is recognizing the need to evolve in a way that is more focused on helping people manage chronic diseases.

Different disease management and integrated case management models exist with the purpose of coordinating the delivery of health care more efficiently and effectively. Within these models, patients take an active role in their own care, and providers are supported with the necessary resources and expertise. The underlying premise is that when the right tools, experts, and resources are applied to a population, then absenteeism, productivity, healthcare expenditures, and direct insurance expenses can be minimized in the near term, or resources can be provided more efficiently. Nonetheless, it may be many years before we can measure the extent to which such disease management systems can reduce long-term problems.

Intuitively, disease management programs for high-risk patients make sense. Perhaps these programs' current less-than-stellar performance have to do with patients being suspicious of larger organizations overseeing these programs and not a physician. Research indicates that when patient-physician relationships consistently focus on primary care, people live longer, populations are healthier, patients are more satisfied with their care, and everyone pays less. However, primary care in the United States is associated with HMOs and with patients being assigned to physician gatekeepers who restrict access to care. In the true sense, a primary care practitioner is a partner and adviser who assumes overall responsibility for coordinating care among all health service providers--while always focusing on the best interests and personal preferences of the patient.

This type of primary care model has been embraced by the Veterans Health Administration (VA). Once disparaged as a bureaucracy, the VA has reinvented itself during the past decade. The system developed a laudable information infrastructure and adopted evidence-based clinical guidelines and performance measures in the areas of preventive medicine, disease treatment, and palliative care. Early research suggests that the VA model is benefiting patients. For example, in 2004 to 2005, the VA outperformed Medicare, Medicaid, and commercial health sector providers on 13 of the 15 quality indicators for which a comparison was possible. (Oliver, A., "Public-Sector Health Reforms that Work? A Case Study of the U.S. Veterans Health Administration," The Lancet, April 5, 2008, pp 1211-1213.). Another study showed that mortality rates were lower for patients cared for in the VA compared with those in the Medicare Advantage programs. The researchers adjusted for differences in chronic disease prevalence and self-reported health status. (Selim, A.J., et al., "Risk-Adjusted Mortality as an Indicator of Outcomes: Comparison of Medicare Advantage Program with the Veterans' Health Administration," Medical Care, April 2006, pp. 359-365.)

VA patients tend to be poorer, older, and sicker than those who use private facilities in the United States, making the VA system's good performance against the commercial sectorall the more impressive.

I was unable to find any empirical studies reporting that the VA system is able to provide higher quality care at a lower costs on a risk-adjusted basis; however, there are a number of "public assertions" that the VA delivers quality care for about 20 percent less per patient than the national average. What is irrefutable is the correlation between quality and costs.  

Another primary care model to watch is the emerging medical home concept. A number of medical home pilot and demonstration programs are sprouting up throughout the country. For example Dartmouth-Hitchcock Clinic is currently participating in the Centers for Medicare & Medicaid Services' (CMS) demonstration program. In addition, this summer, Dartmouth-Hitchcock launched a medical home program with Cigna. Dartmouth-Hitchcock is also applying for the National Committee for Quality Assurance Patient-Centered medical home designation. (For more details, see the November 2008 issue of HFMA's Patient Friendly Billing newsletter.)

These medical home models are based on the fact that most health care for the chronically ill takes place in primary care settings, such as the offices of family physicians. These models are designed to provide patients with a comprehensive, evidence-based, coordinated approach to primary care, which in turn leads to improved quality and lower medical costs. In the pilot, patients, especially those with chronic illness or ongoing medical needs, will have access to enhanced care coordination, communications, appointment availability, and education to help them navigate the healthcare system, while physicians will receive additional reimbursement for providing these enhanced services and supportive infrastructure. Like the VA system, but at a much lower level, the success of these medical home models are dependent on enhanced self-management by patients, an organized and sophisticated delivery system, evidence-based support for clinical decisions, information systems, care coordination, and links to community support groups.

The bottom line:  The challenge for the private sector is to replicate what the VA has achieved. Having sufficient critical mass with both vertical and horizontal integration allows the VA to spread this large investment over a wide base. Moreover, the VA employs physicians, and its patients are captive, allowing it to have greater control.  In the private sector, both the government and insurance companies need to support the necessary infrastructure. Only physicians able to meet the necessary standards would be allowed to participate. As in the VA system, processes and outcomes would need to be measurable and auditable. Physicians would work with larger provider networks that are highly qualified in caring for these high-risk patients. Lastly, these at-risk patients must be given incentives or required to participate in such special programs. Programs like this need to be piloted and, to ensure success, target patients that use the most disproportionate amount of healthcare expenditures. A risk-based reimbursement system would need to be developed along with a pay-for-performance incentive for those physicians able to demonstrate outstanding outcomes. A risk-based reimbursement system would consider the health status and demographic characteristics of the patient (using a methodology similar to what CMS uses to pay Medicare HMO/Advantage programs, a risk-adjusted average per capita cost payment).

Implications:  Targeted disease and care management centered around an appropriately qualified primary care provider has much potential to reduce costs in caring for high-cost, high-risk patients. Physicians must be properly compensated for these unconventional services.  The models described above put the needs of the patient first with expected improvement in care and outcomes. However, to obtain the expected results requires the patients to accept greater responsibility, educate themselves about health maintenance and wellness practices and change their behaviors to better manage their health.


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).

Publication Date: Thursday, January 01, 2009

Login Required

If you are an existing member, please log in below. Username and password are required.



Forgot User Name?
Forgot Password?

If you are not an HFMA member and would like to access portions of our content for 30 days, please fill out the following.

First Name:

Last Name:


   Become an HFMA member instead