HFMA VIEWS

Scott MacStravic, PhD

As hospitals become significantly at risk for re-admissions due to the same problem as the original one within 30 days of discharge, they might be forced to invest in disease management (CM) for at least the patients and diseases for which it is having a significant number of such re-admissions. At a minimum, this means creating a discharge planning and follow-up process that optimizes discharged patients’ ability to manage their recovery and chronic condition in general in order to prevent the crises, complications and worsening that cause re-admissions.

The payoff to hospitals will be not having Medicare refuse to pay for what it decides are “avoidable/preventable” re-admissions, as is already happening for “never” events, which are far more rare and therefore produce less damage when not paid for overall. A recent article reported that there were about 5 million such re-admissions a year in U.S. hospitals according to the Institute for Healthcare Improvement, and as many as 46% could be prevented. [L. Landro “Keeping Patients from Landing Back in Hospital” Wall Street Journal Online Feb 12, 2007 (online.wsj.com)]

Of course, the traditional reasons for not following up with disease management of patients discharged from inpatient treatment for some crisis, complication or worsening of their condition(s) still applies. There is no currently built-in basis for charging for Disease Management (DM) unless the hospital is part of a CMS demonstration project (where they can’t seem to consistently deliver cost savings) or has contracts with insurers or employers for such services. The same is true for physicians, who may also prefer that hospitals stay out of the market if DM ever becomes profitable for physicians.

DM has a seriously flawed history among many of its early reports of success, due to reporting as cost savings what was likely to be “regression to the mean” natural declines in expenditures for DM patients who were identified and selected for DM interventions based on outlier levels of expenditures in a baseline year. Other reports have suffered from “self-selection bias”, reflecting the fact that when patients can choose whether to participate in DM or not, those who enlist in DM are likely to be more engaged in self-management and complying with medications than are those who do not, so their results are likely to overstate what is true for non-participant comparison groups.

Both flaws can be overcome fairly simply, however, and hospitals can avoid overstating the gains they deliver to others, or those they enjoy themselves, when using DM internally for their own employees. Whether for internal or external use, the keys to successful DM are likely to at least include defining DM broadly, and measuring is effects broadly. The definition should include all investments and efforts aimed at reducing the incidence and prevalence of chronic diseases, and of “health conditions” that impair workers’ productivity and performance on the job. And the measured effects should include measures of the full economic benefit of reducing both direct expenditures – for sickness care, disability and workers compensation costs – and indirect gains from improved productivity and performance, across all the measurable or credibly estimable impacts that improved employee health are known to have.

Chronic diseases tend not to have that much impact on workforce productivity and performance, which tends to reflect more as much as double the overall economic costs and benefits of DM, but affects what is usually only a minority of the workforce. Other chronic conditions, including both disease risk and productivity/performance impairment factors, usually have greater prevalence rates, higher impairment impact, or both. And these often have costs that are as much as five times the costs of chronic diseases when applied to the workforce as a whole.

For example, when the Dow Chemical Company calculated the costs of ten chronic conditions, including both healthcare expenditures and lost productivity, it found that lost productivity amounted to almost exactly five times as much as did healthcare expense, in terms of total impact on the workforce. The top four cost conditions were allergies, arthritis, back/neck pain and emotional disorders, rather than diseases in the usual DM domain. [J. Collins, et al. “The Assessment of Chronic Health Conditions on Work Performance, Absence and Total Economic Impact for Employers” JOEM (Journal of Occupational and Environmental Medicine June 2005 547-557]

But even more than the costs of chronic diseases, risks and impairment factors, there is the measured benefits and gains demonstrated by DM providers. Interventions that prevent chronic diseases in the first place tend to save all the negative effects of each disease, where managing such diseases only recovers some of the losses. And interventions that prevent or minimize risk and impairment factors can have significantly greater impact over a far larger portion of the workforce.

For example, HealthMedia, Inc. in Ann Arbor, Michigan, has reported the success it has achieved after six months post participation in its chronic disease and risk condition programs. Its Diabetes DM program yielded a 2.00% increase in productivity, for example, which would be at least 2% of $50,000 = $1000 per participant per year. But because only roughly 5% of the employees in its database had diabetes, this would only amounted to an average of $1000 x 5% = $50 per employee across the workforce if every diabetes patient participated in DM.

By comparison, its general chronic disease/risk condition DM program achieved a productivity reduction of 1.88% per participant, slightly less per participant than was true for diabetes. But because there were roughly 40% of the population that had one of these other conditions, the effect would equal $1.88% x $50,000 x 44% = $376 gained per FTE in the workforce. The difference in the economic benefit per employee between diabetes DM and a general risk/disease DM intervention is important whenever the DM program charges are based on the total number of employees in the workforce, as is true with HealthMedia. The gains of $50 vs. $376 per employee would make charges of say $50 per employee look quite different for the two different interventions. [HealthMedia’s charges vary with the size of the workforce, and may be more in small workforces, or far less than $50 per employee per program in large workforces.]

Moreover, even identifying the size of the problem and potential gains adds costs per worker, since health risk assessments that include productivity/performance impairment questions are usually charged per worker, as well. So the more that costs per worker can be reduced and productivity gains per worker achieved, the better the investment is likely to work.

Scott MacStravic, PhD

During my last position before retiring, as VP for Strategy and Marketing at a hospital system in Denver, I had the opportunity to initiate and incremental approach to employee health management (EHM) as a new revenue strategy for the system. We began by marketing “health fairs” that assessed worker health problems for employers, with a fairly sizable number involved by the time I left. But that was as far as we got, as new management came in, and neither the system, nor the larger system it belonged to, evidenced any interest in EHM.

I have since advised a number of hospitals individually, as well as written a number of articles advising hospitals generally, to invest in EHM. Whether I have had any influence on what is happening or not, it is clear that many hospitals are putting their toes in the water, at least, with examples at dozens, if not hundreds of institutions. Some focus primarily, even solely, on their own workforce, while others market EHM services to other employers, such as the Mayo Clinic, whose “Health Solutions” include a wide range of programs aimed at improving employees’ self-management of their own health, and serves at least 70 employers in the U.S. (www.mayoclinichealthsolutions.com)

Knowing that hospitals are bound to recognize the “conflict of interest” involved in engaging in EHM, since it reduces the incidence and prevalence of the very sickness that drives almost all their revenue, it may make sense to approach such a threatening idea on an incremental basis. This is easily done, though it automatically lengthens the time it will take to develop a comprehensive strategy and program compared to jumping in with both feet.

The first step can be to analyze the current state of the hospital employees’ own health, and the degree of their self-reported productivity and performance impairment related to health issues. EHM differs from the population health management (PHM) efforts of insurance plans in recognizing the far greater economic impact of employee health on overall labor costs and revenue, not merely sickness care costs, it also recognizes a far greater array of “health problems”.
For example, once hospitals look at productivity/performance impairment, they should make sure that to include “impairment factors” such as: lack of sleep and hydration; poor diet and nutrition; inadequate fitness and physical activity; emotional problems such as depressed and anxious feelings; stress; chronic pain of all kinds; allergies, etc., regardless of whether or not they cause a lot of sickness care costs. And they should analyze the impairment effects of sickness and health risks, including: chronic diseases; overweight/obesity; high blood pressure, sugar or cholesterol: smoking; unsafe behaviors’ etc.

There are a number of thoroughly validated estimators of productivity impairment, based on self-reported impairment, which can be translated into actual productivity/performance losses. These should usually be modified to reflect the full value of employee productivity and performance, not merely its cost (annual compensation), as well. Armed with such information, hospitals can at least appreciate the extent of the damage to their financial performance already being done by the current workforce health and impairment levels.

Armed with such information, hospitals should be able to identify which sickness categories drive the most sickness care costs, and which impairment factors drive the most impairment costs, to identify the problem areas with the best potential for savings. If they select or create a first-rate problem assessment tool, it will also identify employees’ probability of changing to healthier behaviors, based on factors such as readiness to change, internal vs. external locus of control, motivation and self-efficacy, etc. By combining economic potential with individual probability of changing, the probable dollar value of each individual can be calculated.

Given this calculation, hospitals can then decide which are the most promising investments, based on their estimates of the cost of internal EHM efforts, or the prices offered by EHM suppliers. Mayo Clinic, for example, posts its pricing guide online, though since some of its prices are based on the number of employees in the workforce, while others are based on the numbers that participate in particular programs, it will not be easy to estimate what the hospital’s costs will be. Other suppliers, such as HealthMedia, Inc. in Ann Arbor, Michigan, charge entirely on a population basis, so overall costs can easily be quoted upfront. Still others charge entirely on a per participant basis, including Healthways, Inc. in Nashville, so prediction is more complicated.

Most vendors can at least quote prices for their health risk assessments, though not all include productivity impairment in their HRA. Once the HRA has revealed the probable programs to be included in the EHM strategy, and the probable targets for participation, a more informed prediction of total costs, and total benefits, becomes more possible. Suppliers will be able to at least describe what their average success rates have been, though predicting what will be the case with a new client will always be problematic.

Once hospitals have initiated their own EHM strategy, they can rely on the results of their investments to guide their future efforts. They may try EHM on a pilot basis, as many employers have, to minimize their risk at the beginning, though this typically delays by a year or more the initiation of an organization-wide strategy. On the other hand, early results may be sufficiently promising, at 90 or 180 days, for example, to enable confidence in a full roll out of the EHM strategy, thereby saving time.

Only if hospitals develop their own “homegrown” EHM programs can they move on to another incremental step of offering services to other employers.  Once they have their own experience with EHM techniques, costs, and results, they will be in a better position to both set prices for employers, and offer “proof” of the efficacy and economic value of their methods. But since few employers currently are able even to measure the ROI from their EHM efforts, the hospitals that master this challenging element of EHM strategy will be in an excellent position to become at least one of the options considered by other employers for their own investment.

The potential for measuring the full range of EHM problems, its full potential and probabilities, and ifs full economic benefit has not been fully realized by any EHM supplier to my knowledge, nor any EHM client, so far. By focusing enough attention at the outset on the measurement (or credible estimation) challenge, hospitals can achieve the apex of EHM performance and ability to demonstrate value, which should place them in the best possible position, whether they choose internal or external applications, or both.

Dan DeLay
Senior Vice President, Supply Chain Analytics, VHA Inc.

With Christmas right around the corner, I find myself thinking about how automation and analytics could help Jolly Old Saint Nick. We all know he’s making a list and checking it twice, yet such manual processes can be labor-intensive and rife with inaccuracies. Think of how much time could be saved if he created the list in Excel and had it automatically updated with address and list changes and a Naughty or Nice Notification Alert, the NNNA. In addition, children should stop handwriting notes to Santa anymore--they should submit online requests for holiday gifts that would automatically arrive in Santa's electronic inbox.

In addition, there has to be a more efficient way to manage worldwide distribution than having one man make overnight deliveries via sleigh. According to a recent report from Swedish researchers, Santa delivers presents to 2.5 billion homes between Christmas Eve and Christmas Day, giving him 34 microseconds at each stop to slide down the chimney, drop off the presents, have a quick snack and hop back on his sleigh. Imagine if he outsourced distribution or had multiple overseas partners. Santa could ensure that deliveries were made and still get a good night’s sleep.

Instead of wishing for a more efficient supply chain for Santa this Christmas, most of my time is spent wishing for a more efficient supply chain for health care. Fortunately, this wish doesn't depend how nice I've been. Hospitals are indeed finding new ways to track their purchases and better manage how they use supplies, so they can make better business decisions and identify opportunities to save money and conserve resources for patient care. They’re also finding ways to collaborate with other hospitals to aggregate their spending, obtain better prices and improve their delivery schedules. Maybe Santa could learn something from hospitals, which have a long history of being hesitant to accept change. I certainly wouldn't mind getting my Christmas gift earlier than I expected.

Implementing change though is never easy...changing the way your organization has done things for years takes a huge amount of faith. Santa has had success using his tried-and-true methods, but surely he must be getting tired of pulling all-nighters to meet his yearly deadline. If he could leverage the latest technology and find new partners, he could take a much needed rest and spend more time with Mrs. Claus.

For hospitals, using new supply chain technologies will conserve time and resources for more patients.