Scott MacStravic, PhD
Hospitals and physicians are “under attack” as never before in terms of squeezing payments to them for what have always been essential services to people. Medicare threatens to reduce payments to physicians by 10% in 2008; outpatient care is going to be packaged for “wholesale” payment, which seems sure to be less than it is now; states are cutting payments for Medicaid beneficiaries in order to balance their budgets. Nowhere does there seem to be any kind of “social contract” where governments are obligated to pay providers any more than they feel like or have available in their budgets.
Add to this, as far as not-for-profit hospitals are concerned, are growing pressures at both state and federal levels to “rethink” the charitable “community benefit” tax exemptions that support them in significant ways, both in seeking charitable donations, and in reducing their costs significantly. A recent report by the IRS noted that many hospitals spend 3% or less of total revenue on care for the poor and non-paying patients. The threat is that governments will set some arbitrary minimum that many hospitals will not meet, and they will lose their tax exemptions, and perhaps be driven out of business.
But in addition to the traditional “community benefit” of giving some services away to the poor and taking losses on others because of having to serve everyone who shows up, hospitals have what may be an even more valuable community benefit, whether or not they make money at it. Many hospitals throughout the country are acting in a manner that not only does not benefit them, but severely risks their long-term survival and prosperity – by striving to reduce the demand for sickness care that can be avoided by better health care.
One of the best and most common examples is in the arena of Disease Management (DM), aimed at minimizing the crises, complications and worsening of chronic diseases that are the cause of 75-85% of sickness care use and expense. Would any organization that is not mission and community-benefit driven strive deliberately to reduce the demand for its profitable services? Yet dozens of hospitals operate diabetes DM centers or programs, which have precisely that effect. And in addition to hospitals, many physician groups have adopted DM programs based on the Chronic Care Model, purely in the interests of their patients and community benefit.
The fact that these programs generate revenue should not hinder recognition of their community benefit. The only way that hospitals and physician practices can afford to deliver free or money-losing services is to generate revenue elsewhere. They are not like “pure” charities that derive revenue solely from charitable donations; in fact, only a tiny portion of the revenue that makes not-for-profit private hospitals possible comes from donations. And services that are delivered for their benefit to the community in spite of their overall cost to providers in terms of their sickness care revenue should qualify as “community benefit” as much as care that is given away.
Diabetes Centers for proactive management of patients are largely a losing proposition. In New York City, for example, of four hospital-sponsored diabetes centers that emerged to deal with the rapidly growing population of diabetes patients in that city, two were forced to shut their doors because of inadequate revenue, though one re-opened thanks to charitable donations. [I. Urbina “In the Treatment of Diabetes, Success Often Does Not Pay” New York Times Jan 11, 2006 (www.nytimes.com)]
The Family Physicians of Western Colorado, a Family Physicians group in Grand Junction, CO operates a DM program for its diabetes patients despite having only one local insurance plan that pays for it, and as a result, losing over $25,000 per year in the effort. P. Mohler & N. Mohler “Improving Chronic Illness Care in a Private Practice” Family Practice Management 12:10 Nov/Dec 2005 50-56. The CareSouth Carolina physicians group in rural South Carolina managed to keep costs for treating its diabetes patients to over $1000 less per year than patients treated elsewhere, but received no added compensation for this performance. [R. Chaufournier & K. Reims “Hidden Opportunities for Cost Savings in Disease Management” Healthcare Savings Chronicle (Coalition America, Inc.) Mar 10, 2005 (www.imakenews.com]
Many hospitals around the country have initiated internal measures that have dramatically reduced the costs of caring for and managing chronic disease patients. But instead of being rewarded for this, they are actually punished, because good patient management reduces the need for sickness care, and the best patient care often reduces the cost of treating them when they are admitted. Duke University Medical Center’s Congestive Heart Failure DM program saved nearly 40% or $8000 per patient, but gained only reduced revenue, while insurers pocketed the savings. [R. Herzlinger “Where Are the Innovators in Health Care? Wall Street Journal July 19, 2007 p. A15]
Many other hospital systems, including the Virginia Mason Medical Center in Seattle and Intermountain Health Care in Utah have found the same consequences when they have improved the care of patients. As long as payers pay for “procedures” rather than health outcomes, on chargeable coded clinical tests and interventions, instead of “cognitive services” that physicians and their staff provide to protect or improve patients’ health, the healthcare system will remain a sickness care system that is, itself, sick.
There are signs that employers and insurers are embracing the concept of promoting health, reducing risks, and managing chronic diseases as the best, probably the only way to “solve” the health care cost crisis. While the federal government keeps finding mixed results, at best, when examining its own DM demonstration projects, probably not considering how its own bureaucratic methods and selection process limits the potential for success, insurers and employers keep finding significant success, with ROI ratios from 2:1 on up. Perhaps the politicians and bureaucrats who want to test whether not-for-profits deliver enough community benefit should expand their definition to cover all they are gaining as payers, rather than narrowly defined “charity care.”
