HFMA VIEWS

Scott MacStravic, PhD

There are a growing number of hospitals that have taken the plunge by offering employee health management (EHM) services – to their own employees, to local or even national employers, or both. They are necessarily challenged competitively in terms of costs, since hospitals have long held a spot near the top among sources of sickness care. But they are also challenged with respect to convenience, for participants since they are the most critical determinant of EHM success.

Hospitals used to have only one location, for example, until they began merging with or acquiring, as well as building new locations in the suburbs in pursuit of more well-paying patients. But even so, the number of locations they offer tends to be in the single digits for any one market, and their locations are often not the most convenient to where workers live. Even when they offer multiple locations, hospitals tend toward “bankers’ hours” in terms of the hours their outpatient services are available.

By contrast, physicians’ practices, particularly of the primary physicians that engage in EHM, tend to have far more locations, and to be located closer to more workers, then the typical hospital. Of course, the hospital may limit its role in an EHM strategy or program to services that require relatively infrequent visits, and serve large numbers of patients at the same time, such as group education or screening for people with the same EHM challenge or goal.

For example, the Diabetes & Nutrition Center at Northeast Medical Center, in Concord, North Carolina (www.northeastmedical.org) provides back-up for its 20 primary physician practices in managing the risk among diabetic patients. Education sessions, including an intensive assessment and intake individual visit, along with a limited number of follow-up visits, preferably in groups, are provided as needed, to promote patient compliance with their medications and lifestyle regimens. Such visits are covered by Medicare, though with a strict limit of ten visits in the first year, and two visits per year thereafter, which may be individual or group visits. Commercial insurance or employers paying for such services may be more generous.

Another competing option, however, is the multiple sites, extended hours, and convenient location (as well as free parking) that characterize retail clinics. While most of these clinics offer mainly routine sickness care services, most also offer flu shots and some screening services, that can be used to track progress of EHM participants, such as blood pressure, weight, and similar checks. And at least one chain of such clinics is already heavily into “Stay Well” EHM services, in addition to traditional “Get Well” care.

The RediClinic chain, which already has 19 locations in the US, with twelve of them in the greater Houston area, in a joint venture with Memorial Hermann Healthcare System, is a good example. A recent CDC study reported that “…retail clinics are particularly well-suited to the delivery of preventive care…that can produce superior returns on terms of employee health improvements and cost savings…(such as) smoking cessation, adult immunizations…and screenings for hypertension, cholesterol and diabetes.” [“Houston Employers Hear New Research That Supports the Case for Retail Clinics” ResidentandStaff.com Oct 29, 2007]

Even more convenient are the growing number of “worksite medical clinics” that operate right were employees work, including some that serve multiple employers who happen to occupy the same campus. These were once used solely for routine occupational health or other sickness care, to save money on charges, and save employees lost time seeking care elsewhere. But they have recently added the mission of promoting employee health and managing chronic disease so as to minimize the use of sickness care, and reduce both absenteeism and presenteeism causes of worker productivity and performance impairment.

Hospitals could be overall sponsors of worksite clinics just as Memorial Hermann is of retail clinics, hiring and supervising physicians or nurse practitioners, as well as other staff needed in EHM programs. And they could certainly function as does Northeast Medical Center in providing services for large numbers at their own sites, where this is more efficient, when such services are not used frequently. Already, the hospitals that are partnering with U.S. Preventive Medicine, Inc. in its Centers for Preventive Medicine and its Prevention Plan, described as paying off for employers:

• Improves employee performance
• Lowers overall healthcare costs
• Improves morale (www.uspreventivemedicine.com/For-Employers.html)

The tough EHM suppliers for hospitals to compete with would naturally be those that do not rely on one or even many places or times, but deliver EHM initiatives online, via website visits, or by mail. Health risk assessments (HRAs) and their feedback, together with continuous and customized communications can be delivered by such means, whereby participants totally control where and when they get the interactions they want. Since such methods tend to be the lowest-cost EHM options, as well, they are that much more convenient.

The only way that hospitals can compete with the convenience of online options is to either join ‘em, as has the Mayo Clinic, for example, that offers online EHM services to some 70 employers in the U.S., or to deliver significantly better outcomes, for both employers and employees, given higher costs. Convenience will always be a major factor in determining both participation and success rates for EHM interventions, but the ultimate test is what the results turn out to be.

Scott MacStravic, PhD

Most U.S. Hospitals seem to be bullish on their futures. The country is in a “building boom” of construction – of new facilities emulating resort hotels in affluent suburbs, hospitals in California meeting earthquake protection standards, replacement of old facilities, expansion of over-crowded emergency rooms, etc. Recent blows to competing ambulatory surgery centers include both physician self-referral prohibitions and payment schedules far lower than what hospitals get for the same procedures, easing that competitive pressure.

But there are still many trends that threaten the future of American hospitals, not their very existence, certainly, but at least their growth prospects. These may not amount to much as individual factors, but they may prove to be something like the fabled “death of one thousand cuts” in terms of their combined impact on future volumes and payment levels, and thereby on the ability of hospitals to pay for their capital investments.

Perhaps the biggest threat comes from the wide-ranging efforts -- among employers, insurers, and government funding sources – to reduce the incidence and prevalence of disease through health promotion, risk behaviors and conditions reduction, and chronic disease management (DM). In one example, physicians participating in a CMS DM demonstration reduced Medicare spending on chronic disease by $21 million in the first year of a three-year project, using large physician groups. [R. Abelson “Shift in Health-Cost Focus Is Said to Show Promise” New York Times July 12, 2007 (www.nytimes.com)]

As third-party payers increasingly shift to “value-based purchasing” in their healthcare investments, they will both pare down their spending by selecting the most cost-efficient/effective hospitals and physicians, and force increased transparency so that consumers will do the same. Hospitals that cannot compete in delivering what all payers consider to be the best value will have trouble surviving, much less prospering. Unlike Lake Wobegon, where all hospitals may be above average, those that remain in the necessary half of the distribution that are below average may simply be forced out of business.

Medical tourism is creating multiple “cuts” for U.S. hospitals. First is the estimated $40 billion in revenue that is traveling to countries offering far lower prices, as consumers who share a far higher share of costs look for bargains. Moreover, the number of countries offering bargains is multiplying rapidly, with both Mexico and Canada potential major competitors reachable by car, as well as plane travel. [J. Hall “Canada a Mecca for Medical Tourism?” TheStar.com Oct 13, 2007]

This growing competition is also forcing greater transparency on U.S. hospitals, as foreign hospitals and physicians happily describe their dramatically lower prices, along with competitive quality and accreditation status. Even payers such as employers and insurers are looking at foreign hospital options as ways of reducing their sickness care expenditures. M. Merrill “Conference Touts Medical Tourism as Catalyst for Pricing Transparency” Healthcare IT News Oct 31, 2007 (www.healtcarefinancenews.com)]

Foreign competition -- along with increasing transparency of quality, costs, and pricing – will increase the growing necessity of improving the operations of U.S. hospitals. There have been estimates that hospitals could reduce their costs by 30-50% by operating at levels already achieved by hospitals such as those in the Sacramento, California market, and by hospitals that are part of the Mayo Clinic and Intermountain Healthcare systems. The most obvious way of forcing such improvements is simply to pay hospitals on a basis closer to what is needed to keep such efficient organizations alive, and seeing which can survive. [J. Bauer “The Imperative to Boost Efficiency and Effectiveness” Healthcare IT News Sep 1, 2007 (www.healtarefinancenews.com)]

The continuing growth in pay-for-performance (P4P) programs is another source of survival threats. As greater proportions of hospital revenue become contingent upon improved performance, for physicians as well as hospitals, there will be perverse incentives forcing both significant capital expenditures, such as those needed for information technology and electronic health records, and overall cost reductions in order to qualify for P4P bonuses. C. Means “Physician P4P Programs Should Target Measures, Increase Pay, Study Finds” Healthcare IT News May 14, 2007 (www.healthcarefinancenews.com)]

P4P programs are gradually but steadily increasing the number of performance measures they include, and the proportion that reflect physician and hospital outcomes vs. traditionally demanded process measures. Physician P4P measures will increasingly reflect “efficiency” in managing patients with chronic disease, who are sources of 70-80% of hospitals’ revenue, which will automatically reduce such revenue. Revenue will increasingly be channeled to providers of all kinds who demonstrate both quality and efficiency, rather than merely enjoying popularity and size in local markets. [D. Manos “Physician P4P Is Here to Stay, CMS Says” Healthcare IT News May 9, 2007 (www.healthcarefinancenews.com)]

Already, a rapidly growing number of retail clinics and urgent care centers are eating into hospitals’ ER volume and revenue, a development that will only continue as consumers share a greater amount of “skin in the game” with respect to their cost burden. Primary physicians are increasingly moving to proactive health practices that often dramatically reduce their patients’ use of hospital and ER services, by 30-90% among the constantly growing number of MDVIP practices, for example. (www.mdvip.com/NewCorpWebSite/ValueInPrevention/HealthStatistics.aspx)

As more primary physicians realize the revenue and personal satisfaction potential in proactive health rather than merely traditional sickness practices, the volume of sickness care coming from that source will decrease as well. And as consumers, themselves, finally catch on to the financial consequences of health vs. sickness, there may well be a significant “health epidemic” emerging in the near future, in addition to increasing consumer parsimony about paying for sickness care.

Hospitals are also cannibalizing their own sickness market by increasingly engaging in proactive health management efforts, as part of their community benefit mission, or as a strategy to gain preference among employers and consumers. They are also doing so in order to improve their own employees’ health and productivity/performance, as part of the continuous necessity for controlling their costs and coping with severe labor shortages, predicted to get worse long before they get better.

The combination of all these “cuts” may not have produced much impact yet, but most are just beginning. While it is impossible to predict what the combined effect of all of them might be, it is certainly obvious that the future of sickness care volume and revenue is unlikely to be as rosy as many hospitals seem to be counting on. The combination may not be “death”, but is likely to be a more severely restricted sickness care revenue stream.