Healthcare Financial News

After switching from an HMO or PPO, first-time users of health spending accounts and health reimbursement accounts reduced their medical spending by an average 8% (excluding prescription drug expenses) over six months, according to a Cigna study. Cigna compared the claims of 42,000 people before and after they enrolled in an HSA/HRA. Once they were in a consumer-directed health plan, consumers reduced inpatient spending by 5% and outpatient spending by 12%. A control group of consumers in an HMO or PPO increased their medical spending by 4% during the same period.

The study also showed that HSA/HRA users were more compliant in taking prescription drugs, increasing their usage of medications used to control diabetes (+18%), asthma (+8%), high cholesterol (+23%), and to prevent heart attacks (+18%). They were also more discerning in their use of some types of prescription medications for which alternatives are available over-the-counter, such as medications for migraines (-4%) and anti-ulcer drugs (-7%).

With seniors having to weigh more than 40 different options for enrolling in Medicare Part D in some regions of the country, it’s little wonder that the drug program has been criticized for its complexity. In an effort to simplify Medicare Part D, CMS is asking insurers, employers, and other administrators of the drug program to respond to a proposal to limit each insurer to two Medicare Part D plans per region, instead of the typical three, and to make the options distinctly different from each other, reports an AP story. Although CMS claims competition among insurers led to a recent premium cut for Medicare Part D beneficiaries, advocacy groups such as Families USA say reducing the plan options slightly won’t end the confusion and will continue to dilute insurers’ bargaining power with drug companies.

CMS’s pay-for-performance hospital demonstration project and employer-led programs to reward physicians for quality are showing promising results in improving quality and reducing costs, says an issue brief by the nonpartisan Alliance for Health Reform. With more than 100 pay-for-performance programs now underway, the brief singled out CMS’s Premier Hospital Quality Incentive Demonstration, which rewards the top 20% of hospitals that have exemplary scores on 33 indicators for five disorders and reduces Medicare reimbursement for those hospitals that fall below certain thresholds. In the first nine months of the project, the average improvement for the 260 participating hospitals was 6.6%, with the largest gains made in community-acquired pneumonia and heart failure.

As the popularity of pay-for-performance programs grows, there will be considerable debate on the size and structure of incentives and penalties required to spur quality without punishing those who take care of the sickest patients as well as how to establish safeguards to prevent over- or under-utilization of services as providers compete for bonuses.

CMS has released information to help with the transition from the provider identifier used in HIPAA standard transactions to the new National Provider Identifier--specifically on the issue of organizational subparts. When healthcare provider organizations apply for an NPI, they must determine whether they have subparts that require their own NPIs. CMS defines an organizational subpart as follows: It is not a separate legal entity; it furnishes health care as defined at 45 CFR 160.103; it does not have to be at the same location as the covered organization healthcare provider; it may have a different medical specialty from the covered organization, and it conducts HIPAA transactions separately from the covered organization. For example, a hospital that owns six home health agencies operating under the tax identification number of the hospital would require seven unique NIPs if each home health agency is separately surveyed and has its own provider agreements with Medicare.

Click here to access CMS information on the electronic file interchange process, which allows an organization to apply for NPIs.

The data sources hospitals and providers use to report quality of care can have a significant impact on their performance scores, as one study published in Medical Care reveals. In an analysis of quality indicators used by health plans for accreditation, reimbursement, and report card scores, the study found that, of the 182 quality indicators that measure care for vulnerable elderly patients, 80% are available only in medical records--even though administration data are typically used to report performance. Performance scores differed substantially when using data from administrative sources versus medical records. Based on quality indicators gleaned from medical records, overall performance was 55%. But for quality indicators applicable only to administrative data, the performance score was 83%. Performance scores were virtually identical, however, when quality indicators applicable to both medical records and administrative data were measured.

CMS has instructed Medicare contractors to begin paying physician claims at FY 2005 rates instead of at the negative 4.4% update originally scheduled for 2006. The Deficit Reduction Act signed into law on February 8 eliminated the lower rates slated to begin January 1, 2006, and restored payment to 2005 levels. January claims that have already been paid will be reprocessed by July 1, 2006. Physician and other practitioners should expect several aggregated payments during the period, says CMS.

The AHA and CMS have collaborated on a clearinghouse to advise hospitals and providers billing under the hospital outpatient prospective payment system on how to better use the Healthcare Common Procedure Coding System. The clearinghouse, which is managed by the AHA, serves as a central contact to provide reliable interpretations of how established codes should be used. HCPCS-related questions should be submitted on a form located at www.ahacentraloffice.org and then faxed or mailed with supporting documentation to the AHA’s Central Office on HCPCS. Quarterly publications will also be issued to assist providers to properly and consistently use HCPCS codes.

In response to a Milwaukee employers’ coalition fed up with high healthcare costs--the Milwaukee area has the country’s fifth highest hospital costs--Humana created a health plan for the coalition’s 44,000 employees that provides prices for 30 inpatient procedures, six outpatient procedures, and various tests performed at area hospitals. According to an article in the Milwaukee Journal Sentinel, consumers can compare prices at participating hospitals for procedures such as hip replacement, which ranges from $20,600 to $41,800, or colonoscopy, which has a range of $940 to $3,530. Humana’s web site also provides information on hospital quality measures, such as complication rates, mortality, and number of procedures performed by each hospital. 

WebMD Health is also inking deals with insurers and employers to act as a private-access portal to give consumers information about prices and quality at hospitals and physicians’ offices and to help them track their medical records. A New York Times article reports that WebMD has signed contracts with Aetna, Cigna, Wellpoint, and employers such as Bank of America, Cisco Systems, Dell Computer, I.B.M, Pfizer, Shell Oil, and the state of North Carolina.

HealthSouth Corporation, one of the largest providers of outpatient surgery, diagnostic imaging, and rehabilitative healthcare services, announced yesterday that it had reached a $445 million preliminary agreement to settle the federal securities and fraud claims brought in the class-action lawsuit against HealthSouth and its former directors and officers. Under the proposed settlement, HealthSouth will pay $215 million in common stock and warrants and insurance carriers will pay $230 million in cash. In addition, the class- action investors will receive 25% of any net recoveries from future judgments obtained by HealthSouth in its lawsuit against Richard Scrushy, the company's former chief executive officer, Ernst & Young, the company's former auditors, and UBS, the company's former primary investment bank, each of which remains a defendant in the derivative actions as well as the federal securities class actions. The proposed settlement does not contain any admission of wrongdoing by HealthSouth.  Although 15 former HealthSouth executives pleaded guilty in the fraud case, a federal jury last year acquitted Scrushy of all charges.

Hospitals are doing little to assuage patients’ growing concerns about safety by their lax credentialing requirements for pediatricians, according to a study by University of Michigan researchers published in the February 22 issue of JAMA. In a survey of 159 hospitals, 78% did not require general pediatricians to be certified to receive privileges. Although 70% of hospitals required pediatricians to eventually get certified, only 45% set a deadline for certification, and 69% allowed pediatricians to keep their privileges even after the certification deadline had passed. It was a similar picture for pediatric subspecialists, with only 43% of hospitals requiring the subspecialists to obtain subspecialty certification by a specified time. In a separate study, the researchers also found that 90% of health plans did not require pediatricians to be credentialed initially with only 41% setting a time limit for credentialing. As the public and regulatory agencies push for greater quality and safety in healthcare, hospitals will have to address their credentialing standards for primary-care physicians, say the researchers.

Seeking to broaden support and strengthen their respective administrative simplification efforts, the American Academy of Family Physicians, the American Health Information Management Association, and the Medical Group Management Association have convened the Healthcare Administrative Simplification Coalition. HFMA is one member of the coalition, which represents a broad range of stakeholders, including physicians, hospitals, health plans, employers, labor, and government. The coalition aims to identify strategies for reducing the costs and administrative complexity of the U.S. healthcare system. The coalition’s areas of interest include reducing redundancy in the process of credentialing physicians and other healthcare professionals and standardizing processes for identifying and confirming patient insurance coverage, including co-payment or deductible amounts.

Despite the many promises of electronic health records, significant obstacles stand in the way of hospitals determined to implement them. According to 176 hospital and health system financial executives surveyed by HFMA, the biggest stumbling blocks to EHR adoption are a lack of national information standards and code sets, insufficient available funding, concern about physician usage, and lack of interoperability. Only 28% of respondents cited insufficient financial return as a significant barrier.

Respondents reported slow progress in realizing the potential of EHRs. The greatest headway was made in implementing electronic order entry, cited by 38% of respondents, followed by results management (27%), electronic health information/data capture (23%), and administrative processes (23%). Only 13% of hospital executives said their facilities were making significant progress in clinical decision support and health outcomes reporting. Funding and ROI were greater concerns for hospitals indicating a low level of EHR adoption.

Both government and hospitals need to develop solutions to solve problems of standardization, funding, and physician acceptance of EHRs. The majority of respondents felt that the government should facilitate development of national standards and code sets to enable hospitals to exchange patient information among providers, payers, and others. Also high on the list of expectations for government were grant funding and payment incentives, simplification of the Medical payment system so hospitals can free up money for IT, and an investment in regional networks. Without waiting for government initiatives, however, several hospitals are creating their own information networks or tapping into existing ones. The HFMA survey and a roundtable discussion with 15 healthcare financial executives describe  strategies hospitals are currently using to partner with vendors, collaborate with other healthcare organizations, and champion EHRs to physicians.

More information on financing capital investments is available on the Financing the Future web site.

More information on EHRs is available in Healthcare IT: Getting Value from the Investment, an hfm magazine collection.

CMS announced today that it is expanding Medicare coverage of bariatric surgery. Prior to today’s decision, CMS’s only nationally-covered bariatric surgery procedure was gastric bypass surgery. Effective today, the list of nationally-covered procedures now includes open and laparoscopic Roux-en-Y gastric bypass, laparoscopic adjustable gastric banding, and open and laparoscopic biliopancreatic diversion with duodenal switch. But Medicare will not cover bariatric surgery in patients who only have the diagnosis of obesity. Patients must also have an obesity-related disorder, such as hypertension, type 2 diabetes, coronary heart disease, stroke, gall bladder disease, osteoarthritis, sleep apnea, respiratory problems, and certain types of cancers. In addition, CMS will cover bariatric surgery done in centers of excellence certified by the American College of Surgeons and the American Society for Bariatric Surgery.

National health spending growth will average 7.2% annually over the next 10 years—2.1 percentage points faster than growth in GDP—and will reach 20% of GDP in 2015, according to a CMS forecast published in Health Affairs. Hospital spending is noteworthy because it is higher than other healthcare sectors. Hospital spending growth for private payers will be 9% this year, and drop to 7.9% in the following nine years due to a decrease in utilization. For public payers, however, hospital spending growth will slow to 6.4% in 2006 as a result of declining Medicaid enrollment. Spending will decline even further in 2007 to 5.5% as adjustments are made to Medicare managed care payments, and then increase to 6.8% for the rest of the period.

Compared to last year, private real per capital hospital spending in 2006 jumps significantly to 4.1% before leveling off to 2.8% annually between 2007 and 2015. “The change in outlook reflects both revisions to the historical data and a new interpretation of the fundamentals underlying the ongoing urban hospital construction boom,” says the CMS report. The slowdown starting next year reflects the impact of consumer-directed healthcare. Yet, “private hospital spending as a share of private personal health care spending is up four percentage points by the end of the projection period (33 percent in 2015, from 29 percent in 2004). Given the downturn in public spending growth, total hospital spending as a share of total personal health care remains flat at 37 percent over the entire forecast period,” according to the report.

Read the HFMA Views post on the CMS estimates for healthcare spending.

Tenet Healthcare Corporation agreed yesterday to pay $7 million to settle a lawsuit filed by the Florida attorney general alleging that the company had falsely inflated its hospitals’ charges from 2000 to 2003 to obtain funds from Medicare’s Outlier Fund. Under the settlement, Tenet will contribute close to $6 million that will be disbursed to 13 public hospitals and will pay the state approximately $1 million to cover costs of the investigation. Tenet restructured its management team in November 2002 and changed its Medicare billing practices in January 2003. The settlement also brings to a close an investigation of Medicaid psychiatric billings at a Tenet hospital in South Florida.

In an agreement reached with Congress, the American Medical Association will develop 140 physician performance measures covering 34 clinical areas by the end of this year, reports the New York Times. Beginning in 2007, physicians will receive a stipend to collect and report data on how well they performed on outcome measures to the federal government, which will tie Medicare payment to the scores. Although the AMA maintains that one set of performance measurements will be easier for physicians to report, specialty medical societies objected to the AMA’s "confidential” agreement with Congress and said that they should have had the opportunity to develop and test the performance measures, according to the article.

In the aftermath of Hurricane Katrina, the GAO is evaluating how prepared hospitals and nursing homes are to evacuate patients during disasters, especially hurricanes. (Download the GAO preliminary report here.) In interviews with hospital and nursing home administrators, the GAO found that evacuation is a measure of last resort and that healthcare facilities attempt to “shelter in place.” Evacuating residents from nursing homes is particularly risky, since the patients cannot care for themselves and usually have no other home. And although the federal National Disaster Medical System can assist in the evacuation of patients from hospitals, it is not equipped to remove patients from nursing homes. The GAO’s final report will analyze areas of vulnerability for nursing homes during disasters.

A new study by the Employee Benefit Research Institute analyzes whether evidence-based clinical information can be used to discourage services and costs that do not result in improved health outcomes. (To download the study, click here.) The study cites Oregon health plans that evaluate medical evidence when deciding what treatments will be covered for Medicaid patients, an approach has been profitable for the plans. And although past efforts to use evidence-based medicine haven’t been particularly successful, say the study’s authors, obstacles such as a perceived lack of sufficient medical evidence, credibility and transparency issues, and administrative costs, can be overcome. The study concludes: “Using the best evidence for treatment and insurance coverage more strategically offers decision makers the opportunity to make more defensible decisions about what services to cover in explicit settings.”

A FASB interpretation that went into effect in December might be a sleeper issue for hospitals as they prepare year-end financial statements. FIN 47 is an interpretation of FAS 143, Accounting for Asset Retirement Obligations. FIN 47 clarifies that when an organization has a legal obligation related to future environmental cleanup, the cost of that obligation needs to be recognized on the current year’s financial statement. The challenge for healthcare and other organizations is to identify the cost associated with that cleanup when future costs may not presently be known. Organizations that do not report these charges could find themselves with an audit opinion that notes material weaknesses in financial controls, according to a recent CFO.com article.

Read the HFMA Views post on FIN 47.

In several high-profile states, the good news/bad news scenario is rising demand and diminishing payment, according to Not-for-Profit Hospitals: 2006 State of the States, a report by Moody’s Investors Service. The report analyzed seven states with a high amount of debt outstanding, significant rating changes during 2005, and important legislative changes. The good news is that aging baby boomers are generating tremendous demand for healthcare services, which will spur favorable financial performance of hospitals. Currently, hospitals in Florida and California are having to expand to accommodate high growth in population.

But hospitals should also expect “dramatic” state programs to curb Medicaid spending, now that recent legislation has given states more latitude to increase Medicaid premiums and co-pays and reduce coverage. Tennessee hospitals, for example, are reducing expenses and attempting to negotiate higher rates from commercial payers to offset an expected rise in charity care and bad debt caused by cutbacks in the state’s Medicaid program. In Pennsylvania, the winnowing of excess bed capacity has resulted in more favorable provider negotiations with managed care plans, but the state’s Medicaid managed care program has reduced hospital revenue by slowing rate of growth of payments to managed care organizations. New Jersey’s Medicaid program, however, was expanded to cover more uninsured people, but funding for the expected tripling of Medicaid enrollment remains uncertain. Yet despite difficult operating conditions, hospitals in California and Pennsylvania had more credit upgrades than downgrades in 2005 as they closely managed their costs, had favorable reimbursement, and capitalized on profitable service lines.

Leading health economist Jonathan Gruber of M.I.T. finds that the Bush administration’s proposals to expand tax breaks for health savings accounts would cause a net increase in the number of uninsured Americans. The study, sponsored by the Center on Budget and Policy Priorities, projects that while 3.8 million previously uninsured people would gain health coverage through HSAs as a result of the president’s proposals, 4.4 million people would become uninsured because their employers would respond to the new tax breaks by dropping coverage and they would not secure coverage on their own.  The net effect would be to increase the number of uninsured Americans by 600,000. “The Administration estimates that its HSA-related tax proposals would cost $156 billion over the next ten years, which would worsen the nation’s fiscal problems,” says Robert Greenstein, the Center’s executive director.

Learn more about HSAs and their effect at the HFMA Spring Summit on consumer-directed health care and pay-for-performance, February 26-28.

California hospitals that are constructing new facilities to meet required earthquake safety standards by 2008 are reeling from a 66% increase in the price of construction materials and labor since 2003, according to the California Hospital Association. The hospital group says construction costs have increased from $330/square foot in 2003 to $550/square foot in 2006 due to heavy demand for construction services in California and qualified contractors limiting their healthcare projects because of the complexity and perceived onerous regulations. The cost for hospitals to comply with the seismic standards has risen by 20% annually since 2001, which few hospitals can afford, says the CHA, adding that 56% of California hospitals are currently operating in the red. Forty percent of California’s 2,700 hospital buildings must be rebuilt to meet the new safety code, although CHA president C. Duane Dauner notes that no patient has died in 35 years due to an earthquake damaging a hospital building, despite numerous major quakes during that period.

Medicare payments for ischemic stroke treatment are lagging behind costs, which may imperil stroke care in the future, according to research reported Friday at the American Stroke Association’s International Stroke Conference 2006. “With an average Medicare reimbursement of $6,589, hospitals lost an average of $2,100 to $3,700 for treating stroke,” said lead author Thomas Goss, PharmD, of Covance Market Access Services, Inc. The researchers calculated that patients’ hospital stays would have to be slashed almost in half to bring standard stroke care costs in line with Medicare’s reimbursement. Inadequate reimbursement will hurt efforts to adopt new technologies to treat stroke, according to study co-author David Matchar, MD, of Duke University.

President Bush outlined his vision for making the country’s healthcare system “more affordable, transparent, portable, and efficient” in a new report. Many of Bush’s initiatives focus on making health savings accounts more enticing, such as offering greater tax incentives for those without employer-sponsored health care to enroll in high-deductible plans, providing tax credits to low-income Americans to fund HSAs, allowing employers to make higher contributions to workers with chronic illnesses, and creating employer-sponsored HSAs that employees can take with them when they leave their jobs. Bush also highlighted proposals to give Americans the option to purchase health insurance in any state and to allow groups of religious and community organizations and small businesses to form associations to get the same economies of scale large employers get when they purchase health insurance. Federal funding would be directed to establishing community health centers in every high-poverty county and providing $500 million annually for states to develop innovative ways to cover the chronically ill, according to Bush’s plans.

Learn strategies for dealing with HSAs at HFMA's Spring Summit on consumer-directed health care and pay-for-performance.

HIPAA’s final enforcement rule, which was published last week in the Federal Register and which takes effect March 16, contains no major changes from the proposed rule, but clarifies how liability is investigated and determined. The final rule amends the existing requirements relating to the investigation of noncompliance to make them apply to all of the HIPAA administrative simplification rules, rather than exclusively to the privacy standards. The final rule also clarifies the investigation process, bases for liability, determination of the penalty amount, grounds for waiver, conduct of the hearing, and the appeal process. For example, the final rule states that the number of violations will not be calculated based on the number of times an identical requirement is violated, but on the number of requirements that are violated. Click here to read the final rule, including section-by-section comparison between the proposed and final rules.

Seniors rank patient satisfaction scores more highly than clinical quality measures when choosing Medicare HMO plans, according to a study by the private, nonpartisan National Bureau of Economic Research. The study found that when seniors evaluated mandatory Medicare HMO report cards, they placed more weight on the comfort of the healthcare experience, such as condition of the waiting room and ease of parking, than on measures of disease screening and prevention. The report card scores did cause patients to switch among Medicare HMO plans but they were not instrumental in getting seniors to leave traditional Medicare for an HMO. The danger in seniors placing high importance on satisfaction scores is that plans may direct resources to maximize those scores rather than focus on patients with chronic conditions, says the study.

President Bush encouraged hospitals and health plans to voluntarily publish their prices during a speech Wednesday at Wendy's International headquarters in Dublin, Ohio. However, he added, "There's always a bill out there in case the volunteerism is not quite as strong as it should be."

The recently released White House National Economic Council document Reforming Health Care for the 21st Century says the president's short term emphasis will be on "disclosure of per-service prices for the most common services and procedures," but expects that soon "consumers would be able to obtain all-inclusive prices for more complex procedures and meaningful quality information for each medical provider."

Price transparency is easier said than done, according to HFMA President and CEO Richard L. Clarke, DHA, FHFMA. "Price transparency is not so much about the underlying charges for a service or episode of care," Clarke said, "as it is about the total payment expected from the consumer after all other payments, adjustments, and discounts are applied. Some leading provider organizations are beginning to offer true price transparency by providing to the consumer an estimate of the final amount of payment expected from an episode of care. But most hospitals don't yet have the people, processes, or technology in place to do this."

Get more information about price transparency at HFMA's Spring Summit on consumer-directed health care and pay for performance.

Read Richard Clarke's HFMA Views post on hospital pricing.

The Securities and Exchange Commission last week approved the Public Company Accounting Oversight Board's Auditing Standard No. 4. (Click here to download the standard.) This standard applies when auditors report whether a previously reported material weakness in a company's internal control over financial reporting continues to exist after a date specified by management. The standard establishes a stand-alone engagement that is entirely voluntary, performed only at the company's request after the company has disclosed a material weakness in internal control.

The PCAOB's auditing standards provide guidance to not-for-profit healthcare organizations choosing to comply with the internal control and other requirements the 2002 Sarbanes-Oxley Act placed on public companies. Auditing Standard No. 2, approved by the SEC in June 2004, addresses audits of internal control over financial reporting required by Section 404(b) of Sarbanes-Oxley. (Click here to download the standard.)

A bill mandating hospitals in the state of Washington to publicly report infection rates is headed for the state’s Senate after passing in the House, reports an article in The Olympian. Arguing that transparency will force hospitals to reduce infection rates, the bill will allow consumers to compare infection rates for each hospital on a web site sponsored by the department of health. If the bill doesn’t pass in the Senate, the legislation’s author, Rep. Tom Campbell, vows, “I’ll be right back at the door next year to get it through.”

The top IT priorities for hospitals are to reduce medical errors and increase patient safety and to implement an electronic medical record, according to the recently released 17th Annual HIMSS Leadership Survey of 205 healthcare IT executives. (Click here to download the 28-page report.) Survey respondents said that, over the next two years, their organizations will focus on adding technologies such as sign-on/identity management, bar coding, speech recognition, and personal digital assistants. Another big push is online patient scheduling; only 14% of respondents said patients can use the Web to make appointments, but 72% claim patients will have that option in two years. Lack of funding was the biggest barrier to moving IT initiatives forward for 18% of respondents, but three-quarters said their IT budgets would increase in the coming year. With a less than 10% growth in IT staff, 79% of the IT executives said they will outsource IT functions in the future.

Republican lawmakers are preparing for an attack on Medicare Part D by Democrats, who are being urged by party leaders to talk up the drug benefit’s problems with seniors, according to an article in The Hill. Thirty Republican legislators met with HHS and CMS officials to discuss administrative fixes to the Medicare drug plan and to deflect bills being proposed by Democrats to make legislative corrections to the program. One much-criticized feature of Medicare Part D is the “doughnut hole” gap in coverage that leaves beneficiaries bare when their drug costs reach $2,250 to $5,100 annually. The response of federal officials is that beneficiaries will be notified when they are close to that threshold so they can switch plans. At least one Republican senator—John Ensign (R-Nev.)—sides with the Democrats in calling for legislative action on the Medicare drug benefit, however. Ensign said he wants Congress tie Medicare drug benefits to beneficiaries’ ability to pay for them.

Thirty-two Texas hospitals have joined a regional syndromic surveillance reporting network designed to detect disease threats 24 to 72 hours faster than current surveillance methods. The hospitals are sharing chief complaint data and selected patient demographics for all emergency room visits, which alerts epidemiologists if the volume of cases for specific syndromes exceeds thresholds. “Syndromic surveillance will help us spot an epidemic or potential epidemic rapidly so we can better control how many people get sick,” said a health official. The initiative is sponsored by the Dallas-Fort Worth Hospital Council and the Southwest Center for Advanced Public Health Practice, a unit of the public health department. 

The funds that allowed New York to identify the first case of West Nile virus and the money that provides defibrillators and training to rural communities may disappear if Congress approves the healthcare cuts proposed in President Bush’s 2007 budget. A Washington Post article examines the effects of the cuts, such as a loss of $1.5 million for defibrillators. "Coronary heart disease is the number one killer in the United States," says Vinay Nadkarni, spokesman for the American Heart Association. "(The defibrillators are) actually something we can arm ourselves with." Critics point out that some of the cuts may actually increase healthcare costs long term. In response to the proposed $12 million reduction in state grants to treat Alzheimer's patients and a $1.6 million cut in an Alzheimer’s education campaign, an Alzheimer’s Association spokesman says, "It costs Medicare three times as much to take care of somebody with Alzheimer's disease than not," he said. "If we could even just slow the progression of this disease, we could reduce the cost substantially.” And although the Bush administration underwrote the Christopher and Dana Reeve Paralysis Resource Center with $2 million in 2001 with great fanfare, the 2007 budget would eliminate the center’s federal funding.

The use of information technology significantly affected positive financial outcomes for 82 Florida hospitals, concludes a study published in the Journal of Healthcare Management. The hospitals, which were adjusted for case mix and bed size, that had the highest overall and operational financial performance were those with the largest number of clinical, administrative, and strategic IT programs. For example, hospitals with positive operating margin had 2.3 more clinical IT applications, 2.5 more administrative IT applications, and 6.0 more total IT applications--35.2 compared with 29.2 for negative performers. Not-for-profit hospitals had significantly higher adoption of IT programs than for-profits, except in the area of clinical IT initiatives.

Although the moratorium on enrolling specialty hospitals in Medicare and Medicaid had been set to expire on Feb. 15, it was extended for as much as six more months when President Bush signed the Deficit Reduction Act. According to a BusinessWeek article, the new budget legislation requires CMS to prepare a report before Congress will decide whether to lift the moratorium. The report is to examine whether physician owners have a conflict of interest in referring patients to specialty hospitals and how the hospitals accommodate uninsured patients. Although physician owners claim that specialty hospitals offer more efficient and higher-quality care for complex procedures, the loss of Medicare patients would cause them “to reevaluate the business model,” says Richard I. Fogel, MD, an owner of Heart Center of Indiana in Indianapolis, who was quoted in the article.

A radio and TV campaign running in Chicago and Washington, D.C., is specifically targeting 47 Catholic hospitals in Illinois for failing to provide enough charity care to patients, reports an article in the Chicago Sun-Times. The ads, which are sponsored by the not-for-profit Fairness Foundation, claim that Illinois Catholic hospitals put “profit over mission” and need “to be forced by lawyers to do the right thing to be moral.” The legal reference is the legislation recently proposed by the Illinois Attorney General requiring all tax-exempt hospitals in the state to devote a minimum of 8% of total operating costs to charity care. The Fairness Foundation is backed by J. Patrick Rooney, who owns a private health insurance company, which has been at odds with hospitals over their billing procedures.

The largest pay-for-performance program in the country is recommending that health plans increase the financial bonus they pay physicians for meeting quality goals to 10% instead of the current 1.5%, according to an article in the Silicon Valley/San Jose Business Journal. Up to 35,000 California physicians who participate in HMO plans would be eligible for the bonuses that reward physicians for improving patient outcomes, keeping patients satisfied, and adopting technology. In the first two years of the California Pay-for-Performance Program, run by the not-for-profit Integrated Healthcare Association, physicians improved clinical outcomes between 1% and 10%, and 54% of the physicians received a bonus for using technology to monitor patient data. The coalition of physician practices, health plans, and employers intends to expand the performance measures beyond the current 10.

The article quotes Gifford Boyce-Smith, MD, senior medical director of quality management at Blue Shield, as saying that, to be successful, financial incentives tied to performance have to make “the difference between a so-so income and a sparkling income."

A New Year’s Eve theft of  365,000 medical records from Providence Home Services has prompted a class action lawsuit requiring the parent hospital system, Providence Health System, to monitor the credit ratings for Oregon and Washington patients whose records were stolen, reports the Register-Guard in Eugene, Ore. A computer case of tapes and disks containing the records was stolen from an employee’s vehicle. The policy of Providence Home Services at the time was for employees to bring home records as emergency backup. The Oregon Attorney General’s office is investigating whether Providence violated state and federal laws protecting patients’ privacy. There have been six unconfirmed complaints of identity theft related to the incident, and Providence says some patients have received calls from someone posing as an employee seeking to confirm Social Security numbers. The hospital system says it has talked to 10,000 patients regarding the theft.

A 20-year-old California man, Christopher Maxwell, was indicted for hijacking Seattle’s Northwest Hospital’s computer system in a “botnet” attack, according to a Reuters story. Officials say the attack, which was generated from university computers in Michigan and California, shut down the ICU, caused pagers to stop working, prevented doors from opening, and caused $150,000 in damages. Backup computer systems prevented disruptions in patient care. The federal government alleges that Maxwell and two conspirators netted $100,000 by installing adware on the hijacked computers. If convicted, Maxwell could spend a maximum of 10 years in jail and a $250,000 fine.

A bill that requires Colorado companies with 3,500 or more employees to pay 11% of payroll to cover healthcare costs for workers was introduced in the state legislature, reports an article in the Rocky Mountain News. Like Maryland, which recently passed a similar law, the proposed legislation targets Wal-Mart, which employs more than 25,000 people in Colorado. The AFL-CIO, which supports the bill, says that forcing large companies to pay health insurance for their workers promotes market competition and prevents corporations from “freeloading” from communities and smaller businesses. Meanwhile, Maryland’s law is being challenged by a retailers association that filed a lawsuit claiming state governments cannot require private companies to provide health insurance to workers.

Nationally, only 10% to 15% of physician practices have adopted electronic medical records, but 20% to 25% of Massachusetts physicians are using them, spurred by the large concentration of medical technology firms and teaching hospitals in the state, reports a story in the Boston Globe. For example, Tufts-New England Medical Center created a physicians’ group that will build a computer system, and Blue Cross and Blue Shield of Massachusetts Foundation spent $50 million to connect hospitals, health centers, and physicians’ offices in Newburyport, North Adams, and Brockton.

Physicians’ failure to adopt electronic medical records has much to do with the price tag of $10,000-$60,000 per physician for such systems, beyond the means of all but large practices. Other stumbling blocks are computer systems that soon become obsolete and the lack of compatibility between each group’s electronic medical records. But competitive pressures to use computerized records may drive doctors to join larger groups that can afford them so they can demonstrate quality and participate in pay-for-performance contracts with health insurers. “I just don’t see how doctors can stay in the game unless they are somehow plugged into an electronic medical record,” says New England Medical Center chief executive Ellen Zane in the Globe article.

In testimony before the Senate Committee on Finance, HHS Secretary Michael Leavitt spoke about the need to protect Americans against bioterrorism, a possible pandemic influenza outbreak, and HIV/AIDS through increased HHS spending proposed in President Bush’s 2007 budget. “We are a nation at war,” said Leavitt. “That must not be forgotten.” The FY07 budget also calls for a $12.2 billion reduction in Medicaid spending and a $36 billion cut in Medicare over five years, including an across-the-board cut if “the share of Medicare funded by general revenue exceeds 45 percent,” said Leavitt. 

Both the minority and majority leaders of the Finance Committee, however, took issue with the proposed mandate that Congress make unilateral cuts in Medicare payments after a certain threshold. Said Finance Committee Chairman Charles Grassley (R-Iowa): “I think an across-the-board reduction—and in some cases a freeze—to provider payments will be challenging.” He said he is also asking CMS to improve “the accuracy and equity” of hospital inpatient payments, citing reports that teaching hospitals realize a 6% profit treating Medicare patients while nonteaching hospitals lose 6% in profits on Medicare beneficiaries. Ranking member Max Baucus (D-Mont.) said that giving Congress the authority to cut Medicare payments to all providers by four tenths of one percent was “mindless sequestration.”

Emergency room visits and hospital readmissions of Medicare home-health beneficiaries have remained unchanged since CMS implemented the prospective payment system to slow home-health spending in 2000, according to a recent report by the Office of the Inspector General. The report was prompted because of the disincentive created by PPS to visit home-health patients. But after evaluating Medicare data from 2000 through 2003, the OIG report found that  Medicare patients’ readmission rates during that period remained steady at 47%, while emergency room visits slightly increased from 29% to 30%.

Yesterday, President Bush signed the Deficit Reduction Act of 2005, which will reduce Medicaid spending by almost $5 billion and Medicare spending by $6 billion over the next five years. The signing comes on the heels of the President’s FY2007 budget proposal, which includes a $36 billion cut in Medicare spending and a $1 billion cut in Medicaid spending over five years.

The President said, “By 2030, spending for Medicare, Medicaid, and Social Security alone will be almost 60 percent of the entire federal budget. And that will leave future generations with impossible choices--staggering tax increases, immense deficits, or deep cuts in every category of spending. The Deficit Reduction Act is estimated to slow the pace of spending growth in both Medicare and Medicaid.”

According to the White House, the Deficit Reduction Act will reduce Medicaid spending by reducing Federal overpayment for prescription drugs. The Act also will give governors more flexibility to design Medicaid benefits and reduce the ability of Medicaid recipients to transfer their assets.

Read the HFMA Views post "The DRA--The Devil For Hospitals May Be in the Medicaid Details."

While extolling the many benefits of electronic health records, Consumer Reports warns that EHRs also can jeopardize the security of personal health information. Potential areas for abuse include marketers using EMRs to sell patients new drugs, and employers and lenders using the information to disqualify people with health problems from obtaining jobs and loans. Despite assurances of tight security for EMRs, recent large-scale thefts of credit card and banking information have shown that all databases can be compromised, maintains the article.

After its $8.6 billion loss in 2005, General Motors Corp. has announced it will rein in the health care costs it pays for its 1.1 million employees and retirees by capping contributions to salaried retirees’ Medicare premiums and supplemental insurance at 2006 levels. According in an article in the Detroit Free Press, the cutbacks to retiree health benefits will save the automaker a total of $4.8 billion in healthcare costs and an additional $900 million in annual administrative expenses. Next year, the company may make other changes to retiree health benefits, such as increasing deductibles and co-pays.

Nissan will also end its practice of providing supplemental health insurance to retirees, reports the Los Angeles Times. Starting in January, manufacturing workers who turn 65 will receive $5,000 each year (adjusted by 3% annually) to buy their own supplemental insurance. And new employees who do not do manufacturing jobs will receive no health coverage after age 65. Toyota and Honda say they do not expect to limit health benefits for retirees.

The Department of Justice filed a lawsuit against Charleston Area Medical Center Inc. (CAMC), alleging that the West Virginia hospital restrained competition in cardiac surgery services. According to an article in the Nashville City Paper, CAMC entered into an agreement with the Justice Department to terminate its four-year agreement with HCA Inc. that prevented HCA from developing a cardiac surgery program in Raleigh County, WV. The lawsuit states that CAMC promised to support two unrelated HCA programs in other parts of West Virginia in exchange for HCA’s cooperation in not establishing a competing cardiac surgery program. Without admitting guilt, CAMC, which has the country’s sixth largest cardiac surgery program, also agreed not to enter into other anticompetitive agreements. HCA was not named as a defendant in the suit.

Tax-exempt Illinois hospitals are marshalling forces to defeat a proposed bill that would require them to contribute 8% of total operating costs to charity care. The Illinois Hospital Association and the Metropolitan Chicago Healthcare Council met with legislators on Tuesday to discuss how the proposal would affect hospitals. The IHA says that the charity care mandates in this bill would create “additional financial burdens and costs” of $739 million per year collectively for the 133 hospitals affected, would cause 28 hospitals that are already losing money to lose an additional $1.58 million per year, and would push an additional 45 hospitals into deficits. “These proposals would threaten the survival of many hospitals, which are barely hanging on by a financial thread,” said IHA president Ken Robbins. A new report from IHA and MCHC shows that hospitals in Cook County alone spent nearly $1.6 billion in 2004 on community benefits, as defined by the state.

Read the HFMA Views post related to this story.

Not-for-profit hospitals will continue to have robust performance in 2006 with substantial improvement in credit quality, says a new report by Standard & Poor’s Rating Services. Strong capital spending will be a hallmark of this year as a result of investor confidence and strong interest by municipal bond insurance companies, allowing hospitals to focus on capacity, efficiency, strategic growth, quality, and IT initiatives. But favorable revenue environments are not expected to last, and Standard & Poor’s cautions hospitals that future debt, interest costs, and depreciation expense will likely hamper them in the future. And hospitals that are struggling today will see a continual downgrade in credit quality. “However, with the majority (80%) of Standards & Poor’s rated portfolio having a stable rating outlook, the near-term expectation is that many will continue to do well in the coming year,” says the report.

Read the HFMA Views post related to this story.

The costs of treating heart attacks in the elderly have risen since 1996 but with no appreciable improvement in survival rates, according to a study published in the latest issue of Health Affairs. The Dartmouth researchers found large regional differences in medical spending, yet higher treatment costs did not translate to higher rates of survival. Physicians who employed low-cost measures such as giving patients aspirin, beta-blockers, ACE inhibitors, and thrombolytics reduced the need for surgery. To achieve optimal benefits from medical spending, hospitals and physicians should improve treatment protocols to include highly effective treatments, according to the researchers. “That some regions could implement technological innovations at remarkably low cost is a reminder that waste and inefficiency are not inevitable by-products of technological growth,” write the authors.

Reaction to President Bush’s proposed 2007 budget, which cuts $36 billion in Medicare spending over five years, ranged applause to outrage. Senate Majority Leader Bill Frist said the budget “challenges us to…scale back the rate of growth in entitlement programs which pose the greatest risk to our economic future.” Senate Democratic Leader Harry Reid said the budget asks “our seniors, our students, and our families to clean up his fiscal mess with painful cuts in health care and student aid.”

HHS Secretary Michael Leavitt was quoted in a USA Today article that if Medicare continues to grow at its present rate, it will represent 8.1% of gross domestic product by 2040 and 14% by 2070. “No nation can sustain that growth,” Leavitt said. Economist Paul Ginsberg at the Center for Studying Health System Change called the Medicare cuts “a very modest reduction.”

Groups representing hospitals and senior citizens also were sharply critical of Bush’s federal budget proposal. Dick Davidson, president of the American Hospital Association, said that, “Hospitals already are stretching scarce resources to respond to the daily challenges of providing care to all who come through our doors. Cuts to these resources will have a negative impact on the availability of care for the patients and communities we service.” And AARP CEO Bill Novelli said that the budget “tilts too heavily at cost-shifting, not cost-saving” and should focus on “skyrocketing costs throughout the health care system” rather than putting “arbitrary caps on Medicare.” As noted in yesterday’s HFMA News story, HFMA president and CEO Richard L. Clarke, DHA, FHFMA, said that while the reductions in rate growth seem modest, “Medicare already pays hospitals less than the cost of providing service and these budget cuts only exacerbate that trend.”

Emergency room overcrowding is causing an ambulance to be diverted from one ER to another every minute, according to a study by the National Center for Health Statistics, which surveyed 10% of U.S. hospitals. The study, which did not report on the effects of ambulance diversion on patient outcomes, also found that once one hospital goes on diversion, nearby hospitals are also quickly unable to accommodate diverted ambulance transports, according to an AP story in the Washington Post.

The 2007 budget President Bush presented to Congress on Monday included $36 billion in Medicare cuts over five years, with $20 billion of those cuts resulting from lower reimbursement to hospitals. In a White House press briefing yesterday, Office of Management and Budget Director Joshua Bolten said that “this budget will reduce the rate of growth over the next 10 years in Medicare spending from about 7.8% per year to about 7.5%. So these are modest reductions in the rate of growth, and we believe that they can be done without undermining the support that [Medicare was] intended to provide.” The budget would reduce annual hospital payment increases from 3.4% to less than 3%, which Bolten characterized as “a very small reduction” that “will produce substantial savings.”

The budget also includes a federal spending ceiling for Medicare beyond which Congress would be required to reduce the government’s share of Medicare costs. “If the Congress does not act…that reduction will happen automatically,” said Bolten.

HFMA President and CEO Richard L. Clarke, DHA, FHFMA, commented, “While the White House contends that these are 'modest reductions in the rate of growth,’ many providers will feel the pinch in that costs are rising faster than Medicare payments. Medicare already pays hospitals less than the cost of providing service and these budget cuts only exacerbate that trend.”

American Hospital Association President Dick Davidson said the budget “is a step backwards in protecting access to care for all Americans.”

Read the New York Times and Los Angeles Times accounts of the budget.

The country is nearly evenly divided between those who favor nationalized health care, 43%, versus those who oppose it, 50%, according to a phone survey of 1,000 respondents conducted by the independent American Consumer Institute. There is, however, a larger opinion divide between subgroups of Americans. More Democrats (54%) than Republicans (27%) want nationalized health plans, as do African Americans and Hispanics (55%) compared to 41% of Caucasians and 27% of Asians. Socioeconomic status also played a big role, with 31% of households earning more than $100,000 interested in nationalize health care compared to 47% of households earning below $25,000. The most surprising finding was that only 52% of uninsured respondents favored federal control of health care.

HealthGrades, a company that sells reports to consumers on how hospitals and physicians measure up on quality indicators, issued a report that patients who are treated at the top 5% of hospitals have a 27% lower risk of dying during their hospitalization and a 14% lower risk of complications. Based on risk-adjusted Medicare data for 26 procedures and diagnoses, top-ranking hospitals had significantly lower mortality rates for the following five illnesses: diabetic ketoacidosis and coma, pancreatitis, pneumonia, heart failure, and coronary-artery bypass surgery.

In his State of the City speech last week, Mayor Michael Bloomberg announced plans for what he characterized as a “revolution” in care for the poorest New Yorkers—investment of $100 million to create “secure electronic health records in our community clinics, and in the offices of doctors who practice in our poorest neighborhoods.” The Mayor’s FY07 budget calls for a $16 million investment; Bloomberg said in his address that he will seek state, federal, and private support as well.

High-deductible plans (HDPs) leave a lot to be desired in consumers’ minds, reports a survey by the Employee Benefit Research Institute and the Commonwealth Fund. (Click here to download the report.) Only 33% of people with HDPs said they were very satisfied with them compared to 63% with more comprehensive insurance who were very satisfied. Thirty-one percent of people with HDPs also reported that they delayed or avoided care compared to only 17% of people with other plans reporting such delays. In addition, HDPs took bigger bites out of paychecks, with 42% saying they spent 5% or more of their income on healthcare-related expenses compared to 12% with conventional plans reporting that level of expense. And although consumers were more cost conscious if they had a HDP, they said the information to make healthcare decisions based on cost was difficult to obtain, undercutting one of the core principles of consumer-driven care.

The GAO also evaluated the experiences of federal employees enrolled in HDPs and found that those who chose the high-deductible plans tended to be younger, male, earned salaries of $75,000 or more, and were more likely to chose individual rather than family plans. (Click here to download the GAO report.)

Learn how to manage HDPs at HFMA's Executive Summit "A New Era in Healthcare Finance: Consumer-Directed Health Care and Pay for Performance," February 26-28 in San Antonio. Click here for information and to register.

A recent GAO audit claims the Department of Veterans Affairs used inadequate documentation and lacked a methodology to support reported and projected "management efficiency savings." The savings were used to “reduce requests for a higher level of annual appropriations to fill the gap between the cost associated with the VA’s projected demand for health services and the amount the president was willing to request,” said the GAO report. The VA responded that it did not use savings projections to fill the gap between its costs and the President's funding request, saying that identifying goals, setting challenging targets, and forecasting management efficiency savings are entirely appropriate for a large healthcare organization like VA.

Medical tourism is on the rise, reports an article in the Los Angeles Times, with hospitals abroad actively recruiting U.S. patients who are attracted by surgical procedures that cost a fraction of what they cost here. The web site medicaltourism.com, which lists medical facilities in India, South America, the Middle East, Africa, Southeast Asia, and Europe, gets 70,000 hits a month, says the doctor who founded the site. The article quotes a spokesperson at Bumrungrad Hospital in Bangkok, who claims that a third of its patients come from other countries, including 58,000 American patients last year.

Click here to read an HFMA Views post on medical tourism.

Maryland’s rate-setting commission is proposing hospital rate increases of just over 5% for the next three years, which is 0.5% lower than national increases, according to an article in the Baltimore Sun. Maryland’s health secretary said that higher hospital rates could push the state’s Medicaid spending beyond 7.1% per beneficiary, causing it to lose federal matching dollars. Citing the need to replace facilities and equipment, hospital executives, however, argued that Maryland’s increases should match national rates.

Hospital operating margins dropped 20% from 2003 to 2004 for an average of 4.04%, according to a new study by Solucient. The study found that hospitals with more than 300 beds had the best operating margins—an average 4.25%—and hospitals in the West, typically strong financial performers, had the biggest decline with average operating margins falling from 5.73% in 2003 to 2.79% in 2004. Average cost per adjusted discharge continued to rise to $7,041 for all hospitals in 2004, and total spending on capital as a percentage of total operating expense maintained a steady decline.

CMS announced Thursday that lower than expected costs per beneficiary enrolled in Medicare Part D will result in a drop of  20% in the overall cost of the program in 2006. CMS attributes the lower costs to “strong competition in the prescription drug marketplace” and projects state payments for the drug benefit to be 27% less over a 10-year period and that beneficiary premiums will decrease to an average of $25/month this year from $37/month. HHS has also extended the emergency supply of prescription drugs pharmacists can give to seniors enrolled in the program to 90 days.

Meanwhile, five states plan to sue the federal government, claiming that they are being overcharged for the cost of drugs to low-income seniors under Medicare Part D, according to an article in the Los Angeles Times. Before the new drug plan went into effect, states reimbursed the federal government for drug costs for the poor and disabled. But 15 governors have said that since Medicare’s new plan was implemented, the cost of drug coverage to the states has increased instead of dropping by 10% as was promised by Congress. The five participating in the lawsuit are California, Texas, Kentucky, New Jersey, and Missouri.

Florida has released to the public online data on hospital infection rates, seven types of complications, deaths for 10 conditions, and prices of procedures, according to an article in South Florida’s Sun-Sentinel. The web site, floridacompare.gov, lists severity-adjusted data for all of its 207 hospitals--the first state to release such comprehensive information. Consumers are cautioned not to use the data to comparison shop among hospitals, but to ask their physicians what precautions a hospital will take to reduce infections and complications.

The House of Representatives passed legislation yesterday cutting $39 billion from the federal budget for social programs, including over $11 billion related to Medicare and Medicaid. The victory was narrow--216-214, with 13 Republicans voting against. The Senate will be considering another round of budget cuts next week.

Under the legislation, Medicare funding would be reduced by $6.4 billion. These savings would be achieved by reducing payment for various services. Medicaid would lose $4.7 billion, achieved in part by reducing benefits and payment for prescription drugs. The measure, which was passed by the Senate in December, now goes to the President’s desk.

Click here for the Bloomberg News report on the legislation.

Citing Vermont seniors’ confusion over Medicare Part D, Rep. Bernie Sanders (I-VT) is expected to introduce legislation to replace the drug program with one that would waive or reduce the 20% co-pay and monthly premium for low-income seniors and place an annual cap of $2,000 on out-of-pocket drug expenses. Sanders says the current Medicare drug benefits serves the interests of pharma and health insurance companies rather than seniors, according to an article in the Burlington Free Press.

The Securities and Exchange Commission (SEC) has published its proposed revisions to compensation requirements for executives and directors of public companies. (Click here to download the 370-page document.) The revisions are intended to give investors clearer and more comprehensive information about compensation, security ownership of officers and directors, director independence, and related party transactions.

In light of CMS’s moratorium on referrals of Medicare patients to specialty hospitals, the Commonwealth Fund’s Program on Medicare’s Future reviewed reports on specialty hospitals by the Medicare Payment Advisory Commission (MedPAC) and CMS. The MedPAC report found that specialty hospitals treat fewer Medicaid patients and perform a larger share of profitable procedures than do community hospitals. Community hospitals, however, have yet to suffer negative financial consequences from competition with specialty hospitals. Although physician owners of specialty hospitals accounted for most of the Medicare patient referrals, the physicians didn’t admit their patients exclusively to their own hospitals, according to the CMS report. The Commonwealth Fund study concluded that both community and specialty hospitals will continue to court well-insured patients to the exclusion of others.

Reactions to the healthcare proposals in President Bush’s State of the Union address included strong support for the President's goals of improving access and controlling cost, but less consensus on the means to achieve those goals, such as expanding health savings accounts.

Senate Majority Leader Bill Frist, M.D. (Tenn.) supported the President’s focus on healthcare and pledged that “together we’ll address the rising cost of health care and guarantee affordable and accessible care is a reality for all Americans,” although he did not comment on components of the President’s proposals.

Sen. Frist’s counterpart across the aisle, Senate Minority Leader Harry Reid (Nev.) also supported the making health care a focus of the legislative agenda, but said the President’s solutions “do nothing to reduce healthcare costs or make us healthier.”

America’s Health Insurance Plans president and CEO Karen Ignagni said that “boosting contribution limits and making HSAs more flexible will enable more consumers to access these innovative products” and supported tax incentives to help “level the playing field for those who seek coverage in the individual market.”

Richard Davidson, president of the American Hospital Association, applauded the goals of improved quality, cost transparency, and liability reform. Davidson concurred with the President’s assertion about the critical importance of information technology in solving the health system’s ills, but said “the federal government must provide leadership in guiding health IT adoption.”

And how did Main Street react? A Gallup poll found that 64% of respondents expect Bush's healthcare proposals to be effective, while 33% say they won’t be effective.

Without reform, primary care is “at grave risk of collapse due to a dysfunctional financing and delivery system,” says the American College of Physicians (ACP) in a report that proposes to increase financial incentives for internists to care for increasing numbers of aging and chronically ill patients. By 2020, treating the elderly will consume 40% of a general internist’s time, says the ACP, which represents internists. But current reimbursement that does not value lengthy office visits and time-consuming disease management and evaluation is causing a shortage of primary care physicians. The ACP is advocating a concept called the “advanced medical home” that would certify practices to provide “comprehensive, preventive, and coordinated care” and hold them accountable for quality, efficiency and patient satisfaction. The physician group is also calling for Medicare to reimburse physicians for time spent managing patients, e-mail and phone consults, and investing in information technology to aid in disease management.

President Bush made several broad proposals designed to “confront the rising cost of care, strengthen the doctor-patient relationship, and help people afford the insurance coverage they need” in Tuesday’s State of the Union address. The proposals included expanding use of electronic health records, strengthening health savings accounts, creating incentives for individuals and small businesses to purchase health insurance, making coverage more portable, and passing medical liability reform. The President also called for creation of a commission “to examine the full impact of baby boom retirements on Social Security, Medicare, and Medicaid.” Bush offered no specifics; only 228 words of the over-5000-word speech focused on health care.

Bush framed his proposals with the statement that “our government has a responsibility to provide health care for the poor and the elderly, and we are meeting that responsibility.” In the Democratic response, Gov. Tim Kaine (Va.) took issue with that contention, criticizing the federal government for its “efforts to slash Medicaid and push more costs on to the states,” as well as for what he called a poorly planned Medicare drug plan.

HMOs’ profits were up 21.2% for the first six months of 2005 compared to the same period in 2004, according to Weiss Ratings, Inc. The HMOs reporting the largest increases in net income were Horizon Healthcare Services, Oxford Health Insurance, Capital Advantage Insurance, Blue Cross Blue Shield of Michigan, and Aetna Health. “Despite a slowdown in earnings growth, industry profitability remains strong,” says Melissa Gannon, vice president of Weiss Ratings.

A pay-for-performance consortium initiated by technology companies Intel, Cisco, and Oracle will offer financial incentives to physicians at several large California medical groups and IPAs to follow guidelines for evidence-based care, care management, and patient education, according to an article in Genetic Engineering News. The consortium’s goal is to get physicians at groups such as Stanford Hospitals and Clinics, Palo Alto Medical Foundation, and Kaiser Permanente to adopt electronic health records and use automated tools for making clinical decisions.