HFMA VIEWS

HFMA President and CEO Dick Clarke recently asked a group of CFOs what they would do if the Medicare payment level was the best they could get from any payer? The answers first focused on the fact that Medicare payments have not kept up with cost increases, are arbitrary, and therefore are inadequate to sustain operations. As the conversation continued, however, the focus shifted to the need for fundamental shifts in care and service delivery.

As this week’s testimony by MedPAC Chairman Glenn Hackbarth before the Health Subcommittee of the House Committee on Ways and Means indicated, MedPAC sees little reason to boost the level of Medicare payment. Although Hackbarth acknowledged that most hospitals have a negative Medicare margin, he strongly suggested that the reason was too little attention to cost containment.

Hackbarth drew a distinction between hospitals under “high financial pressure” and those under “low financial pressure.” Those under high pressure have low non-Medicare margins and have seen little growth in net worth; the opposite is true for those under low pressure. MedPAC believes that hospitals under high pressure have shown an ability to constrain costs. The implied recommendation for low pressure hospitals that run negative Medicare margins is that they must better control their costs. As stated by Hackbarth, “Medicare payments are still adequate to cover the costs of efficient hospitals.”

The value strategy--bringing down costs while increasing quality--is becoming more compelling for all healthcare providers. HFMA has recently launched its Healthcare Financial Pulse project. Over the coming months, Healthcare Financial Pulse will be providing resources and case studies illustrating how healthcare organizations are making gains in a variety of areas. One area of focus--costs and quality--will describe how hospitals are driving a value strategy. We encourage you to visit the site often for new updates and information.

With $19 billion in economic stimulus recovery money about to enter the health IT pipeline, concerns about how that money will be spent and to what effect are beginning to appear in the news. A series of articles published online by Health Affairs this week, for example, offered a few cautionary notes for President Obama and the 111th Congress.

Mark Frisse of Vanderbilt University warned that health IT cannot simply automate a broken system, and called for an “incremental, realistic” approach to health IT adoption. And David Brailer, the first National Coordinator for Health Information Technology for former President George W. Bush, expressed concern that Congress is now pushing for adoption without focusing on how to ensure that systems can communicate with one another and create meaningful, useful information.

Also this week, two faculty members at Harvard Medical School questioned projected savings of $80 billion annually from health IT adoption in a March 12 Wall Street Journal op-ed (subscription required). While acknowledging that electronic health records offer some undisputed benefits--especially in their ability to warn of potential adverse prescription drug reactions--they argued that true cost reduction will instead require hard decisions on issues such as the uninsured’s use of emergency departments for primary care and the extensive use of intensive care units at the end of life.

For those looking to climb aboard the health IT bandwagon at a bargain price, Wal-Mart offered some good news. The New York Times reported that Wal-Mart plans to team its Sam’s Club division with computer-supplier Dell and software-supplier eClinicalWorks to offer electronic health record systems to small physician groups at an estimated cost of under $25,000 for the first physician and about $10,000 for each additional physician.

As healthcare reform took several strides forward at the White House this week--with the appointment of the new HHS head and director of the White House Office of Health Reform, and the White House summit on health reform --a decision from the Supreme Court might have a significant impact on the future costs of pharmaceuticals and medical devices.

In Wyeth v. Levine, the Court ruled that pharmaceutical manufacturer Wyeth’s compliance with FDA labeling requirements for its anti-nausea drug, Phenergan, did not preempt a state product liability lawsuit for an injury resulting from use of the drug. The label had warned that “extreme care should be exercised” in a method of administering the drug known as an “IV push” and that gangrene resulting in amputation was the likely result if the drug came into contact with arterial blood. A Vermont-based musician, Diane Levine, received an IV push of Phenergan that went awry, resulting in the amputation of her right hand and forearm. A state jury awarded her $7.4 million, agreeing with her argument that the label should have barred intravenous injection of the drug.

An article in the Washington Post notes that the decision is “a major setback to pharmaceutical companies, which face thousands of lawsuits in state courts from patients who allege that drugs have harmed them.” The decision also rejected a 2006 Food and Drug Administration policy, which had asserted that FDA approval of labeling preempts conflicting state law. Writing for a 6-member majority of the Court, Justice John Paul Stevens said that there was nothing to suggest that Congress had intended that FDA approval would preempt state lawsuits.

More change on the preemption front may be on the way. In a decision last year, the Supreme Court had ruled in favor of medical device maker Medtronic, Inc. in another preemption case. In that decision, Riegel v. Medtronic, Inc., the Court found express language in a federal law establishing a scheme of federal oversight for medical devices that preempted state product liability lawsuits.

The Wyeth decision does not overrule Riegel, as there was no express language regarding preemption in the law at question in Wyeth. Congress may, however, be on its way to nullifying the Riegel decision. The day after the Wyeth decision was announced, Democratic legislators in the House of Representatives introduced a bill that would allow state product liability lawsuits against medical device manufacturers.