August 8, 2007
This was the primary discussion lead by keynote speaker, Nicholas Wolter, MD, CEO, Billings Clinic, Montana, at HFMA's CFO Summit sponsored by Cerner Corporation.
According to Dr. Wolter, "There are very few of us who are investing in mental health, geriatrics, and chronic care management. Instead, we are investing in those few services that produce most of the profit - new cancer centers, new cardiac hospitals, new orthopedic facilities. Likewise, we are seeing more and more physicians choosing higher-income specialties instead of family practice and internal medicine, and becoming direct competitors of hospitals."
He continued his concern saying, "Can we continue down this path where distorted reimbursement structures are leading us? Or is there a way to align the interests of hospitals and physicians that will better serve both groups – and the consumers they are committed to care for?"
Dr. Wolter was not posing a rhetorical question with these words but was looking for practical answers from the roomful of senior financial executives gathered at the day and a half summit. Given the rather candid audience, he heard some surprising answers - along with a lot of caveats and concerns on the topic from the group.
The Current Status
Both physicians and hospitals are responding to the same bottom-line pressures, pointed out speaker Donna McGregor, FHFMA, CPA, CFO, Health Quest, Poughkeepsie, N.Y. These include decreasing payment, increasing salaries and other expenses, and rising professional liability insurance costs. Also, there is more competition between hospitals and physicians as more procedures move from hospital inpatient settings to hospital outpatient and physician settings.
Physicians are organizing their own services that compete with hospitals, and in some case, are partnering with large for-profit corporations. "Physicians used to look for hospitals with deep pockets," said one CFO, "but with venture capitalists coming into the market in search of physicians, they don't even need us for that anymore."
"We are actually creating a situation where coordination and quality of care are being impaired," said Wolter, quoting industry advisor Jeff Goldsmith in a December 2006, Health Affairs web exclusive. "The widening rift between hospitals and physicians exposes the public to medical risks: inconsistent service quality, economically motivated and marginally necessary care, and disparities in access to complex treatment depending on the patient's insurance status."
To better facilitate an environment of communication, openness, and trust, the American Hospital Association's Society for Healthcare Strategy and Market Development has recommended hospital leaders ensure the visibility/accessibility of senior management, including the CEO; create opportunities for physician leadership development; allow for substantive physician involvement in decision making; provide integrated information systems; insist on high-quality and safe patient care; support physician practice growth; support infrastructure improvements that increase efficiency/accessibility of care; and explore multiple strategies for alignment of economic interests (Governance Institute Leadership Conference, January 2007).
Improving Hospital-Physician Relationships: Financial Opportunities
Pay for Performance
According to Wolter, the Medicare Payment Advisory Commission is recommending that "we move pay for reporting to the next level: pay for performance, with 2 percent of payment based on performance. But right now, pay for performance is built on our current payment silos, so it isn't necessarily helping to coordinate care from the patient's perspective."
HFMA Chairman 2006-07 Joseph Fifer, FHFMA, CPA, vice president and CFO, Spectrum Health Hospitals, an integrated healthcare system based in Grand Rapids, Mich., described his organization's experience in implementing a pay-for-performance program with major payers. Spectrum agrees to forego a certain percentage of payment if it fails to achieve its quality objectives for 47 conditions, representing more than 70 percent of the patient population. As of February 2007, Spectrum had tracked more than 310 statistically significant improvements in mean performance.
The program has two components: A clinical quality component, which consists of 10 measurements tracked with statistical process control charts; and the 100,000 Lives campaign, which features standards set by the Institute for Healthcare Improvement, including systemwide implementation of rapid response teams, prevention of adverse drug events, ventilator bundles per protocol, and central line bundles per protocol. In both cases, graduated incentives are based on the number of objectives achieved.
Goals include both physician- and hospital-level improvements, but there are no separate financial incentives for physicians. "Paying money to physicians for quality improvements brings up a whole new set of dynamics that may not be necessary," said Fifer. "They don't want to look bad as the quality data becomes more and more public."
Partnerships and Joint Ventures
Finding that half a loaf is better than nothing, many hospitals are turning to joint ventures as a way to create alignment with physicians. But do these arrangements really go beyond the bottom line to address quality and service issues? What about the resentment of physicians who are left out? Is it even appropriate for not-for-profit organizations to funnel tax-exempt resources into, say, a heart hospital with physician partners?
Several CEOs pointed out that, as lumbering bureaucracies, hospitals frequently lack the nimbleness required to capitalize on joint venture opportunities. But Bob Hemker, CFO, Palomar Pomerado Health, San Diego, said a bigger challenge for hospitals and physicians is the issue of control. "Both say we want to joint venture, implying a 50/50 arrangement. But as soon as we sit down at the table, someone immediately says it's got to be 51 percent...The question is, `Do we really need to be in control?' There are situations in which taking second position could result in a very successful venture, and I think hospitals need to get comfortable with the idea that physicians may be better equipped to manage services relating to ambulatory specialties. Business objectives can be met without a controlling interest in the equity," he said.
Others expressed similar views. "I think some of this is an attitude issue with leadership," said a CFO who believes his organization may have missed out on a profitable joint venture with an orthopedic group because the CEO was defensive and worried that "they'll take all our business."
Diagnosis-Related Group Reform
"If the vast majority of DRGs [diagnosis-related groups] paid somewhere between 95 percent and 105 percent of cost, there would be less incentive to limit hospital care to just a few profitable specialties," said Wolter. "The way to get there, as recommended by MedPAC, is to look at hospitals' specific relative weights, rather than use a national average DRG payment based on charges; to move to all patient refined DRGs™ [APR DRGs] and then try to do cost-based pay."
When it comes to DRG reform, all eyes turn to Maryland, which has used a severity-based payment system for years under a waiver with Medicare. "Unlike hospitals in other parts of the country, we receive payments equal to charges, except for a 4 percent discount for Medicare and Medicaid, so our payment runs approximately 95 percent of charges," said Diedra Bell, FHFMA, CPA, senior vice president and CFO, Shore Health System, a member of the University of Maryland Medical System.
Maryland's experience is that hospitals using APR DRGs average 8.5 diagnoses, compared with 6.5 diagnoses for hospitals using the modified CMS [Centers for Medicare and Medicaid Services] DRG system, and that case mix increases approximately 5 percent for each additional diagnosis documented. This can be as much as 5 percent of reimbursement.
Looking Ahead
At the end of the day, there is little we know for sure about the future of physician-hospital relationships, except this: The path will not be smooth or sure but, given the rising level of pressure from government, payers, and, increasingly, the public to better align their interests, change is not only desirable but inevitable.
All the potential solutions carry their own problems, but among those most likely to be adopted are some form of pay for performance, DRG reform, and joint ventures. Technology is both a reason and a means to come together, and here hospitals will have to take the lead. But both sides will need to make greater efforts to understand each other's imperatives, and realizing the many concerns they have in common is a good place to start.
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HFMA Wants You to Know ISSN: 1540-0697. Volume VI, Issue 16. Copyright 2007, Healthcare Financial Management Association. All rights reserved.