Who Us? Providers and the Cost of Care

I came home the other day to a local paper, the News and Observer, sitting on my desk.  “Major Hospitals Pile Up The Cash” blazed across the front page, encircled by pen with a bold exclamation point written to the side.  The article highlighted the inflated costs of major North Carolina hospital networks – more than 10 percent above the national average. 

Large providers leverage their local market share to increase prices without adding any new value in caring for patients.  These aggressive strategies are done while maintaining tax-exemption from their non-profit status.  The higher costs are passed to insurance companies that, after tacking on a profit margin, pass the costs to their patients, the community members for whom the hospitals supposedly exist to serve.

U.S. healthcare spending is at a concerning level.  It is common for patients and providers alike to point to the insurance industry as the villain, insinuating that the implicit self-interest of a for-profit company must be driving costs skyward.  Though third-party payers are a part of the problem, their role is likely that of an enabler rather than a driver.

The complexity of insurance in the U.S. shields consumers and physicians from the horrific levels of spending occurring in the system.  However, payers are probably one of the few major stakeholders that are attempting to restrain healthcare spending.  Every charge from a physician or hospital threatens to eat into their profits.  It is a strange twist to see that in some contexts, our beloved hospitals are driving costs up and our much despised insurers may be fighting to keep costs down.

The Organization for Economic Cooperation and Development (OECD) is a collection of the world’s most industrialized nations; many of the members have comparable economic health to the U.S. and the group provides an appropriate cohort to compare benchmarks for the performance of given industries, such as healthcare.

You may ask yourself “compared to OECD countries, do we really spend that much on healthcare?” Unfortunately, yes we do.  In 2000, the OECD median spending on healthcare per capita was $1,983, the U.S. spent $4,631 – 137% greater than the median and 44% more than the next highest country, Swizterland.  Not only are we spending more in absolute terms, but relatively as well; a greater part of our economy is dedicated to healthcare, 13% of GDP in 2000 compared to the OECD median of 8.0%.¹  These trends have only worsened over time.

In 2000, analysts noted a pattern of convergence.  Countries that were spending more than average on healthcare had lower growth rates in healthcare spending, and those spending less than average had higher spending growth rates.   A global, per-capita price to healthcare was emerging.  The U.S. was the only country that defied this pattern; though it had the highest per-capita cost, its growth rate was still above the OECD median.

The trends from that time have changed very little.  The U.S. remains the most costly system in the world and we have yet to significantly shift the growth curve of spending.  This wouldn’t be a major problem if we received appropriate value for the money spent.  It seems, however, that is not the case. The U.S. averaged 118 hospital admissions per 1000 patients, the average length of stay was 5.9 days, and the acute care hospital days per capita was 0.7;  all of these user indicators were less than the OECD medians: 154 admissions, 6.4 days, and 1.0 acute care days respectively.  We are paying more for less care.

Though inefficiency and higher costs of inputs, such as supplies and labor, play a part, providers are finding ways to increase prices without changing the services they provide.  This brings us full circle to the sensational news headline on my desk; large hospital networks can dominate a geographic region, effectively monopolizing care.  Healthcare is unique in that it must be provided locally – care can never be outsourced abroad or even to another state.  Large nation-wide insurance companies must accept higher rates from locally dominant networks.

It sounds a bit theoretical and cerebral, but the concepts do play out in the real world; the price of a given procedure is significantly associated with the size of the health network offering the procedure.  The News and Observer, in their recent expose, reported that a local hospital charges 3 to 10 times the cost of many common procedures, basically because they can.

The current uncertainty about healthcare reform is driving hospitals to strategically grow, acquiring surrounding physician practices.  As they increase in size, so do they in market leverage.  Physician groups join large networks to partake in the bargaining power – their reimbursements increase with renegotiated contracts but nothing of value is added.  The increased costs are then passed to patients, through insurance companies.

As reform continues, we can expect a heavy focus on the insurance industry; it is already the case with the Supreme Court decision underway.  Many providers will likely support this focus, claiming that reforming insurance is essential to cost control while simultaneously asserting that the stance is in the best interest of the communities they serve.

We, as consumers of healthcare, should be aware that a conflict of interest exists.  Providers historically have charged as much as they can get away with.  It is visible both in local examples and comparative international trends, we should not expect otherwise in the future.  If our political dialogue ignores the  role of providers in the pricing of care, a significant driver to our rising national spending will be preserved.

That is all for now.  Hopefully I have left your emotional state somewhere between hope, fear, and a belief of the infinite.  Until next time…

References

1. Anderson GF, Reinhardt UE, Hussey PS, Petrosyan V. It’s the prices, stupid: Why the united states is so different from other countries. Health Aff 2003;22(3):89-105.

Patient Centered Care and Other Mysteries of Life

Recently, I attended the Institute of Health Care Improvement conference in Washington, DC.  One thing was clear, the concept of patient centeredness is currently at the forefront of primary care, and regardless of the Affordable Care Act’s political fate, the Patient Centered Medical Home (PCMH) is coming into prominence.   However the definition of the PCMH is fluid – over 40 definitions pop up if searched on Google.  This post will hopefully allow you to answer the question “What is a PCMH?” and thus gain social prestige and recognition among your peers.

It could be said that many parts of our current health care system are physician-centered.  Access to the a physician is limited, requiring scheduling significantly ahead of time or long waits for a same day visit.  Additionally, communication amongst physicians is minimal, patients often shuttling documents back and forth between providers.  Finally, care can often be reactive rather than proactive, the system only cares for someone once they present with an acute issue, rather than working actively to keep the person healthy in the first place. (Iglehart 2008)

To be fair, the described scenario is “primary care gone wrong”, many physicians do make a tremendous effort to practice in alignment with the 4 “pillars” of primary care: comprehensiveness, coordination, continuity, and contact. (Harper and Balara )  These values as well as others are incorporated into the definition of the PCMH.  For some, the PCMH is a transformative model of care to others it is merely a label to what is already happening in many clinics; the utility of the term is it brings the existing values of primary care into the folds of a productive political dialogue.

Patient centered care is an umbrella term for a style of care that adheres to specific core values.  PCMH is the name for a provider, usually a primary care physician (PCP), currently practicing patient centered care.  Many primary care physicians are in the process of certifying their outpatient services as a PCMH.  The building is the same and the doctors are the same, but the care process is modified.  Many may mistakenly think that a PCMH is a type of building or a specific arrangement of providers, this is not the case.

The term Patient Centered Medical Home was first coined by the American Association of Pediatrics in the 1960’s who noticed that children with complex illnesses needed a different approach to care - coordinating the many physicians and social services associated with the management of a disease.  Currently PCMH is a term used by the National Committee for Quality Assurance (NCQA) – a not-for-profit company that provides the PCMH certification.

This brings us to the first point; PCMH certification is a business.  There are currently 4 organizations that provide patient centered care certification.  Each organization charges a practice to become certified and each uses its own, slightly different, language to talk about patient centered care.  The NCQA has been certifying practices the longest – 3 years – and uses the terms “certification” and “Patient Centered Medical Home.”  The Utilization Review Accreditation Counsel (URAC), by contrast, has only been “accrediting” practices for the past year and uses the term “Patient Centered Health Care Home” (PCHCH).

Don’t let the language confuse you, all of the certifications fall under the umbrella term of “patient centered care” and the concept of a “medical home.”  Though the details of each certification process vary, they all focus around key values that are central to the medical home.  The NCQA requirements are the most commonly accepted and are presented in several broad categories:

-better access

-coordination of care

-active management of care

-support for self-care

-performance improvement

-use of data systems

So what would a PCMH look like?  Imagine a clinic that had same day appointment slots for urgent visits or could schedule a normal visit within 3 days; the office offered weekend hours and after-work hours as well.  Additionally you could email your physician for easy requests like a refill for a longstanding prescription. 

The care would be comprehensive, allowing a patient to have most or all medical needs addressed in one location – including the management of some complex cases usually in need of a specialist.  In the event a patient must see an outside physician, the PCMH also exchanges information with surrounding providers allowing your primary care physician (PCP) to access clinic notes and tests from other doctors instantaneously. 

Electronic medical records would track preventive care measures and actively contact and flag patients for screening or education.  The office would provide an array of materials for patients to manage their own health care which could be accessed online, patients can also view lab results and their medical records online through the clinic’s website.  Finally, clinics would track the health of their patient population, report the results publically, and use the information to improve their care processes.

Clinics are pushing for the PCMH certification because many insurers are starting to reimburse PCMHs better or pay a per-member-per-month flat rate to PCMH certified clinics.  The financial rationale is that PCMHs provide a type of care that reduces emergency room visits and hospitalizations from acute complications of chronic diseases – both extremely expensive types of care.

What stands in the way of us and this utopic vision of the primary care?  One issue is that care often involves many providers; as comprehensive as care may be in the medical home, there will be patients that seek care from other providers – either by need or preference.  Doctors not associated with the PCMH – and not receiving the financial benefits from payers – have no reason to coordinate with the PCHM.   Care coordination is expensive and it would be a poor choice to invest in the infrastructure needed unless there was a financial benefit to offset the cost(Fisher 2008).

Additionally, fee-for-service makes new models of care challenging.  For example, physicians have no way of coding an e-mail contact for reimbursement.  For this reason, some doctors refuse to do email, claiming that it is an uncompensated increase in their workload.  Fee-for-service also doesn’t pay for the additional administrative costs of tracking and coordinating care across providers(Fisher 2008).

There are answers out there, but nothing is certain.  Increased payment for PCMHs in a fee-for-service structure may give the financial buffer for doctors to engage in uncompensated care processes such as coordination and electronic access.  Similarly, a per-member-per-month flat rate can be used to cover the same processes. 

PCPs are also experimenting with additional ways of consulting specialists – such as a tele-consult.  This would allow a PCP to benefit from the expertise of the specialist and the patient can still receive all of her care at the PCMH.    The PCP pays the specialist a per-episode fee in exchange for the consult so the specialist has a financial interest in collaborating.  The arrangement allows a broader array of services to be provided from a single office, far better for the patient in terms of convenience and coordination.

The future of patient centered care is promising but uncertain.  The challenge is that care occurs in teams and in this case, not all players are functioning with the same incentives.  Collaboration, likely bolstered by new financial arrangements - both with payers and specialists - are going to be critical steps to creating an environment in which the PCMH will thrive.

Congratulations, you are one of the few that have survived, still conscious, another journey into the churning waters of healthcare reform.  I bid you farewell and urge you to make an effort to socialize more with your peers rather than reading articles such as mine.  Until next time...

References

Fisher ES. 2008. Building a medical neighborhood for the medical home. N Engl J Med 359(12):1202-5.

Harper MA and Balara JAE. Patient centered medical home. .

Iglehart JK. 2008. No place like home—testing a new model of care delivery. N Engl J Med 359(12):1200-2.

Accountable Care Organizations Demystified

Accountable Care Organizations (ACO), what are they?  Will they work?  Can they be trusted in a dark alley?  This model is an increasing focus of many people’s attention.  Medicare, through policy, embracing the ACO signals a cautious return to the era of managed care and capitated payment structures popular in the 1990’s.  The purpose of ACOs are to reign in healthcare costs while maintaining or even improving care quality.  They are, however, contentious and some question the effectiveness of the model to achieve stated objectives.

Consider this an ACO crash course.  Using some of the more recent academic literature¹ I’ll help explain exactly what an ACO is, why it’s different from things we’ve tried before, and why exactly it may or may not do the things that we hope.  The explanation of ACO’s will be structured by the three attributes that distinguish it from other models of care: shared savings, accountability for quality, and free choice of providers by patients.

The basic model

Referring back to prior posts about reimbursement you may remember the term “capitation” or paying a flat rate to take care of a patient.  Capitation can happen in many flavors and on many levels.  For example one can capitate based on a disease (I’ll pay you a one-time fee of $500 to care for a broken ankle), one can capitate care for a person (I’ll pay you $50/month to care for my aunt), or finally you can capitate on a population level (I’ll pay you $1,000,000 to take care of a population of 5000 patients for one year).  ACOs are a form of capitation that occurs on the population level.

Medicare notes how much money an organization spent in a year to care for a large group of patients.  Using that number as a benchmark, Medicare promises to share any savings the organization manages to generate in the following year.  In other words if the organization’s spending for the group is less than the prior year, it splits the difference with Medicare.  In this way an organization can financially benefit from doing less (or being more efficient).  To ensure that organizations won’t “stint” on care, quality measures are put in place.  An organization only gets the full savings if it maintains a specified level of quality.

Shared savings

Many health management organizations (HMO) in the 1990’s approached cost reduction by attempting to control the flow of services.  Insurers required physicians to get pre-approval for more expensive services and also made attempts to control patient’s access to specialists.  This model was often frustrating for doctors who felt that insurers were trying to dictate how to practice medicine.  ACOs place care decisions back in the provider’s hand but construct financial arrangements which encourage judicious use of resources.

The ACO falls into a spectrum of different forms of risk-sharing between payers and providers – risk meaning who will have to pay if a patient gets sick and/or if care is expensive.  To understand better why ACOs are unique, discussing the range of payment approaches is useful.

Fee-for-service: the provider has no risk in this arrangement.  The payer pays a fee to the provider for every service performed.  In this model the provider is incentivized to do more rather than less.

Shared-savings: The provider is given a portion of savings – as measured by performing a service or group of services for less than a benchmark number.  If the provider spends over the benchmark number nothing happens.  In this way providers are incentivized to control costs through the potential of a bonus.

Shared-risk: Similar to shared savings, the provider gets a bonus for performing services for under a certain amount.  In this model, should the provider go over the benchmark amount, she must pay back a portion of the excess spending back to the payer; this is also called “two-sided risk”.  Cost-savings is incentivized through both the “carrot” of a bonus based on shared savings and the “stick” of a fine for overspending.

Capitation: Proper capitation is paying a provider a fixed amount for care before the care is delivered.  If the provider spends less than the amount then she keeps the entire savings – rather than just a portion as in the shared-savings model – and if the provider goes over the amount then she must shoulder the entire excess cost – as opposed to only a portion of the excess in the shared-risk model.

Generally speaking, the closer towards complete capitation a payment model becomes, the more powerful its ability to catalyze cost saving.  Many, if not most, organizations are deeply entrenched in fee-for-service relationships.  Insisting that those providers flip instantaneously to complete capitation is unrealistic – the ACO is a compromise.  ACOs allow various iterations of savings sharing and risk sharing, providing some of the benefits of capitation without being entirely unpalatable to organizations.

 

Both shared-risk and shared savings are layered on a base payment structure of fee-for-service.  Critics claim that the incentives generated by an ACO won’t be strong enough to meaningfully alter spending.  The findings of the Physicians Group Practice Demonstration (PGP), a 5 year ACO pilot program, are mixed.  Some participating providers achieved consistent savings, some only achieved savings a few years of the study, and still others achieved no savings for all five years.

Quality

As mentioned in the previous post, measuring quality was a trait of the leading HMOs but was not ubiquitous; some HMOs delivered low quality care as a way to gain more cost savings.  ACOs are unique in that all organizations are tracked on numerous quality metrics.  Only by maintaining a high level of quality can an ACO reap the “shared savings” manna. 

Most PGP participants consistently improved the quality of care across all measured metrics suggesting that ACOs are effective at improving quality of care.  There is concern that the quality metrics are inadequate to ensure appropriate care is being delivered; though the quality metrics were selected to represent a broad spectrum of care the theoretical possibility remains that providers may be able to selectively improve measured aspects of care while allowing other non-measured aspects slip.  Not enough quality measures and the metrics won’t meaningfully change care, too many quality metrics and providers may find the requirements overly burdensome and take a pass on forming an ACO.  Recently the required metrics were reduced from 64 to 32.

Choice

Patients, if assigned to an ACO, are still free to seek care from any provider they wish.  This is a contrast to a traditional managed care model with “in-network” and “out-of-network” providers – charging more if a patient seeks care out of network.  Why does this matter? 

How physicians are paid can dictate the style with which they practice.  Theoretically, a physician that is a part of a managed care system will be more judicious with resources and may be more likely to recommend against seeing a specialist, getting a high-tech test, etc. 

However, our prevailing cultural perception leans towards the “more is better” side of the equation and some patients want the high-tech test, specialist, etc. regardless of medical necessity.  Patients can seek care directly from specialists, regardless of what their primary care physician suggests. An out-of-network specialist may operate under entirely different financial incentives and lean towards a maximal approach to testing and care – which, though perceived as ideal by the patient, is costly and often inappropriate.

Managed care networks deal with this problem by creating a financial barrier; a patient that seeks care out of network needs to pay more thus encouraging patients to seek care from resource-conscious network providers.  In leading managed care programs, where care is responsive and quality focused, patients are often more than happy to make this trade – limited choice for more affordable care.  However, when HMO’s exploded, the new HMO breed lost the delicate cultural balance of economy and quality and patients felt locked into networks providing inadequate care; it’s one of the reasons why “HMO” is a bad word for some people and also the reason why ACOs have steered clear of limiting patient choice.

The flip-side of this coin is the provider who has no leverage in controlling how a patient consumes health care resources but is financially accountable for any care the patient seeks.  For example, if a patient bruises her knee but, instead of going to her primary care doctor, seeks care directly from a non-ACO orthopedist – who then orders a $1500+ MRI - the orthopedic billing is taken out of the ACOs shared savings potential.

Architects of the ACO fear that limiting a patient’s choice of providers will condemn the model to knee-jerk unpopularity.  Providers are concerned that very little leverage exists to control patient use of medical resources which limits the ACOs ability to significantly change patient use of health care resources.  Both are right.

Conclusion

The ACO, at this moment, is a game of carrots.  Many components are voluntary, the choice of providers to form an ACO and the choice of patients to seek care from their ACO physicians.  Medicare has to ensure that the deal is sweet enough – in terms of potential shared savings and ease of achieving quality benchmarks - to lure provider networks into forming ACOs.  Similarly, it seems that providers must do the same for patients; unable to require patients to see “in-network” providers, ACO’s may need to ensure accessible, efficient, and high quality care to keep patients from straying to other providers.  If done well, care may rise in quality and accessibility.  If done poorly, the ACO name may be tarnished as patients go elsewhere for care.

References

1. Berenson RA. Accountable care organizations in medicare and the private sector: A status update. 2011.