iProtean—Health Spending and the Economy

Researchers and policy makers have been investigating whether the recent slowdown in health spending has resulted from structural changes in health care or from broader economic forces, specifically the recession in 2007 through 2009.  A recent study by The Kaiser Family Foundation and the Altarum Institute assesses the correlation between health spending and the economy. “This analysis will not settle that debate—especially about what the future holds—but will hopefully illuminate it,” wrote the authors of the study. (“Assessing the Effects of the Economy on the Recent Slowdown in Health Spending,” Kaiser Family Foundation, April 2013)


The context for the analysis is apparent in the numbers:  health spending has been growing at historically low levels in recent years. In 2001 through 2003, health spending peaked at 8.8 percent. By 2009 to 2011, it grew by only 3.9 percent, and researchers estimate that 2012 health spending growth climbed minimally to 4.3 percent.


Using 50 years of health spending and economic trends, the researchers found that the vast majority (77%) of the recent decline in the health spending trend can be attributed to broader changes in the economy. They also noted that structural changes in the healthcare system may be playing a modest role as well. Twenty-three percent (23%) of the decline resulted from healthcare system changes such as higher deductibles and other cost sharing initiatives that discourage use of services, as well as various forms of managed care and delivery system changes.  While discussions in the healthcare community have focused more on changes in delivery, the researchers noted that it is difficult to determine which of these developments is having a greater impact.


The researchers concluded that over time the economy is by far the biggest determinant of changes in health spending overall. Increases in health expenditures are likely to trend upwards over the coming decade as the economy returns to a more normal rate of growth. Sustaining low growth rates in health spending will require continued pressure for containing costs throughout the system. (“Assessing the Effects of the Economy on the Recent Slowdown in Health Spending,” Kaiser Family Foundation, April 2013)


Figuring this out is not an academic exercise. Health spending has major implications for policy:

  • Health spending growth is a major driver of federal and state budgets through the Medicare and Medicaid programs, as well as the tax exclusion for employer-sponsored insurance.
  • Beginning in 2014, health spending growth will also affect the federal cost for subsidies provided to low- and middle-income people buying coverage through new health insurance exchanges.
  • Health spending growth is an important factor in estimates of the federal budget deficit, and the Congressional Budget Office (CBO) recently lowered its forecast of future Medicare and Medicaid spending based on the historically low rates of growth of health spending in recent years.
  • An understanding of what is driving changes in health spending will also be important for interpreting what happens as the Affordable Care Act (ACA) goes into effect. For example, if policy makers believe health spending growth will remain low, they may be satisfied with current cost containment strategies; if they do not, there may be greater impetus to consider new efforts to address health care costs.


HFMA weighed in on the Kaiser/Altarum study with this comment:  “It’s not surprising that healthcare cost growth is correlated with the strength of the economy. The key to sustainability over the long term is limiting excess cost growth, which has fallen to levels not seen since the managed care boom of the mid- to late 1990s due to mechanisms such as high-deductible plans and better coordinated care via patient-centered medical homes, accountable care organizations and bundled payments.  If these initiatives suffer the same fate as managed care plans in the 1990s, however, state and federal agencies likely will further intervene to try to constrain cost growth.” (“Study: Slowdown in Health Spending Growth Linked to the Economy,” HFMA, April 22, 2013)


To read the full study from The Kaiser Family Foundation, please click here



iProtean subscribers, please note the new advanced Finance courses in your library: Value-based Purchasing and Accountable Care Organizations, Transforming Your Organization into an Integrated Delivery System and Financing Considerations for Integrated Delivery Systems featuring health experts Marian Jennings, Dan Grauman, Lisa Goldstein, Nate Kaufman and Monte Dube.



For a complete list of iProtean courses, click here.



iProtean Symposium & Workshop

Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Barry Bader (Bader & Associates), Ed Kazemek (ACCORD LIMITED).  For more information, click here.


For more information about iProtean, click here  


iProtean—New Study Disputes Correlation between Quality and Patient Satisfaction

Patient satisfaction assessments represent 30 percent of the bonuses and penalties given to hospitals during the first year of Medicare’s value-based purchasing, a component of the health reform law.


But a new study from Johns Hopkins University suggests that patient satisfaction is not necessarily a good indicator of quality care. The study analyzed patient satisfaction and surgical quality measures in select urban hospitals in 10 states. Study results indicate that little relationship exists between a hospital’s patient satisfaction scores and most quality ratings.


Patient satisfaction was measured through the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey, Medicare’s standardized survey instrument and data collection methodology that has been in use since 2006 to measure patients’ perspectives of hospital care. Quality was judged by how consistently surgeons and nurses followed recommended standards of care such as giving antibiotics at the right time and taking precautionary steps to avert blood clots.  Researchers also examined how hospital employees evaluated safety attributes at their hospital.  (“Patient Satisfaction May Not Be A Good Indicator Of Surgical Quality, Study Finds,” Kaiser Health News, April 17, 2013)


One of the researchers noted that while patient satisfaction scores are a valuable component of evaluating a hospital, they are getting excessive attention because they are among the few quality measures available to the public. But this study, as well as previous studies of the relationship between patient views and the quality of care, indicates that the two are not necessarily correlated. “Opinions are not barometers of whether your hospital’s surgical care is any good,” wrote Jordon Rau in a recent Kaiser Health News article.


Nevertheless, Medicare views patient satisfaction scores as useful. In addition to the 30 percent bonus/penalties tied to patient satisfaction under value-based reimbursement, Mr. Rau noted that some of the surgical measures are also included in the calculations that make up the other 70 percent of the bonus/penalties this year. Hospitals currently can gain or lose one percent of their regular Medicare payments under the value-based purchasing program; this increases to two percent in October 2013. As of December 2012, 1,557 hospitals were rewarded and 1,427 others saw a reduction in payment. (See Deloitte Center for Health Solutions “Health Care Reform Memo,” April 22, 2013 and iProtean blog, “Two Pay-for-Performance Programs Now in Effect,” October 2, 2012.)


The study does reveal some relationship between how patients rated their experiences and whether hospital workers considered themselves part of a team approach to caring for patients.  However, there was no relationship between patient scores and hospital workers’ overall assessment of the hospital’s safety culture. (“Patient Satisfaction May Not Be A Good Indicator Of Surgical Quality, Study Finds,” Kaiser Health News, April 17, 2013)


In the iProtean advanced course Value-based Purchasing and Accountable Care Organizations, Dan Grauman and Nate Kaufman describe the value-based purchasing program under the Affordable Care Act, how it works, its positive and negative effects for hospitals, implementation and involving physicians.



For a complete list of iProtean courses, click here.



iProtean Symposium & Workshop

Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Barry Bader (Bader & Associates), Ed Kazemek (ACCORD LIMITED).  For more information, click here.


For more information about iProtean, click here.


iProtean—Further Analysis of Impact of Sequestration on Not-for-Profit Hospitals

Many hoped that Congress and the White House would negotiate a combination of revenue increases and spending cuts that would replace the federal budget sequestration that took effect April 1.  Sequestration mandates approximately $1.2 trillion in spending cuts over the next 10 years ($85 billion over the next six months). But legislators and the Administration appear far from agreeing on budget terms that might alter the deficit reduction measures prescribed in sequestration.


The hospital, physician and other provider component of sequestration—a two percent reduction in annual Medicare reimbursement rates over the next 10 years—will have a negative credit impact on not-for-profit hospitals, according to a recent Special Comment from Moody’s Investors Service.  In 2013 alone, the cuts will lower revenues of hospitals, physicians and other providers by $11 billion, according to CMS estimates. Moody’s noted that the negative outlook for the not-for-profit healthcare sector “incorporates the likelihood that the risk of federal healthcare funding cuts will persist beyond sequestration.”


Hospitals hardest hit by the two percent Medicare reduction will be those with “outsized reliance on Medicare reimbursements, especially those that have not budgeted accordingly or made commensurate adjustments to expenditures or other revenues.”  Medicare continues to be the largest source of revenue for most hospitals.  As the population ages and becomes eligible for Medicare, hospitals will see a higher percentage of Medicare patients.  Many hospitals are trying to lower costs enough to breakeven on Medicare and are adopting strategies that focus on increasing efficiency and capturing economies of scale, thus the heated efforts to merge with or acquire other providers (see iProtean’s advanced course, Affiliation and Consolidation Strategies, Part 1, released earlier this month).  Moody’s notes that “sequestration provides further incentives to expedite such strategies.


There are planned and proposed Medicare reductions in the future.  The White House has proposed a new budget with substantial cuts to Medicare (although the cuts would replace the two percent sequestration reduction); this budget isn’t likely to get very far, but it emphasizes the evolving focus on reducing Medicare. Of course, healthcare reform cuts will reduce payments to hospitals by more than $300 billion through 2019.  And the “doc fix” will remain an issue (see iProtean blog, Hospitals Bear Brunt of Impact of Doc Fix. January 3, 2013).


The direct financial implications of lower Medicare reimbursements are and will force hospitals to adopt new strategies for lowering costs.  In addition, there are indirect negative effects for hospitals from sequestration and additional proposed cuts or taxes.  Moody’s Analytics projects GDP will grow at 2.1 percent in 2013, factoring in sequestration, compared to the 2.5 percent that had been expected. The Congressional Budget Office notes that growth in employment could be reduced by as much as 750,000 in 2013 because of sequestration.  These projections signal job losses, which would be a drag on hospitals’ top line revenue growth. Individuals will lose their employer-based commercial coverage and may defer care, resulting in a decline in admissions.

(Special Comment: “The Sequester Series: Medicare Reductions Present New Headwinds for Not-for-Profit Hospitals,” Moody’s Investors Service, April 8, 2013)


To read Moody’s Special Comment in full, look for it under the Resources tab in the upcoming course, Affiliation & Consolidation Strategies, Part 2.  This course features Marian Jennings, Monte Dube, Lisa Goldstein and Dan Grauman and covers analyzing alignment, when mergers go bad, regulatory implications, aligning with physicians, ratings impact of consolidation and assessing the consolidation.


For a complete list of iProtean courses, click here.



iProtean Symposium & Workshop

Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Barry Bader (Bader & Associates), Ed Kazemek (ACCORD LIMITED).  For more information, click here.


For more information about iProtean, click here.

iProtean—Diverse Strategies Show Promise

For this week’s blog post, we feature a recent update from DGA Partners in its New + Noteworthy feature. Dan Grauman, President & CEO of DGA Partners, appears in many of iProtean’s Finance and Mission & Strategy courses.


We are on the road interviewing experts for several new advanced courses:  Governance of Integrated Care Systems, Committee Effectiveness, Changing/Emerging Models of Governance and the Importance of Physician Leadership.  Our regular blog will resume next week.


New + Noteworthy, DGA Partners, April 2013

As health providers adapt to health reform and an increasingly competitive marketplace, strategic responses are starting to come into focus.  Some say there will be one successful model, but we are seeing diverse strategies that show some promise.  One group of hospitals and health systems is focusing on developing the capabilities to manage population health, looking to new revenue models that reward quality improvement and lower population health costs.  Many of these are integrated health systems with employed or aligned physicians.


Another group is holding to a more conventional volume-focused strategy, with the support of investment in physician alignment.  In many cases, physician employment is securing the health system revenue stream.  Both of these strategies are potentially viable, depending on the local market.


However, hospitals and health systems will need to keep an eye on two potentially disruptive niche players:  1) physician groups who are rewarded by payers for managing population health and 2) low cost providers that payers encourage/incent patients to use.


Both of these niche strategies are being accelerated by insurers seeking to reduce premiums for products on insurance exchanges.  Narrow or tiered network products and benefits plans with high deductibles can make consumers more cost conscious.  The result could be significant market share shifts in highly profitable services, and resulting financial difficulty for high cost health systems.



For a complete list of iProtean courses, click here.



iProtean Symposium & Workshop

Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Barry Bader (Bader & Associates), Ed Kazemek (ACCORD LIMITED).  For more information, click here.


For more information about iProtean, click here.


iProtean—Strategy vs. Tactics: The Governance Imperative

Blog submission by Jeffrey Bauer, Ph.D., an independent consultant and speaker based in Chicago.


Strategic planning has grown in importance since my previous iProtean post addressed the topic (Back to the Future, August 2012).  Today, the future of health care in general and hospitals in particular looks even less like an extension of the past than it did last fall.  Uncertain, uneven implementation of the Affordable Care Act and increasing government austerity suggest that having a purposeful, written response to anticipated change—a strategic plan—could make the difference between desirable and undesirable futures.


Holding the current course is a viable option for very few provider organizations.  The current view in my crystal ball suggests “business as usual” is the surest path to not being in business within just a few years.  Hence, hospital trustees and chief executives have a compelling need to look at how their organizations are going to reinvent the way health care is delivered.  Purchasers, payers and patients who have been paying the bills for the past 50 years have reached the limits of their willingness and ability to keep paying more for increasingly expensive services of uneven quality.


However, as I work with hospitals and medical staffs around the country, I still see that some leaders have not clearly defined an appropriate response to the end of growth in healthcare spending.  Almost all leaders recognize the need to prepare for fixed revenue (i.e., no growth in income), but finding ways to cut costs of existing operations does not provide a path to long-run success when the marketplace is also compelling providers to fix the way health care is delivered.  It’s time for a top-level review of the difference between tactics and strategy to make sure that governance leaders are exercising their responsibility to guide strategy, not tactics.


  • Tactics is doing things right.  Tactics requires operations leaders with clinical sensitivities and management skills to allocate resources optimally when all factors of productions are fixed.  The tactical leader’s day-to-day role ismaking the best possible use of on-duty personnel for providing appropriate care, given supplies and facilities available for their use.  Hospitals need excellent tactical managers more than ever to handle the pressures of keeping the doors open today.


  • Strategy is doing the right things.  Strategy is the job of future-focused leaders who study the realm of possibilities for reallocating resources to totally different production processes (as discussed in my previous post).  Strategic leaders ask tough “what if” questions and have the courage to make changes that result in doing other things that are “right” in the context of the new marketplace.  Strategy is the key to meeting demands to fix the way health care is delivered.  It is the unique role of governance to keep the doors open in the future.


To illustrate the difference between strategy and tactics from an organizational perspective, a good tactician manages a service line to provide service of acceptable quality within the operating budget.  Given the push toward cost-effective care, a good tactical leader focuses on finding wasted resources in current production processes and reallocating them to productive use.  Excellence in managing performance improvement across the enterprise is rapidly becoming the key to success for health care’s tactical leaders.


The strategist, on the other hand, decides whether the existing supply of service lines is the right thing to be doing under future circumstances—a competitive marketplace demanding value, predictability, transparency, accountability, convenience, customer service, fair and affordable prices, etc.  All these challenges require making major changes in what we do, not better management of how we do it.


Finally, today’s successful healthcare strategist realizes that making progress in all these areas requires multi-stakeholder cooperation.  No single entity can make the necessary changes by itself.  Envisioning and enabling long-term, win-win partnerships with purchasers (employers), payers (health plans), and patients is perhaps the strategist’s biggest job in the post-reform era where the medical marketplace has reached its limits.  As Jerry Garcia once said, “Somebody’s absolutely got to do something, and it’s incredibly pathetic that it has to be us.”  Us is today’s leaders in governance.  Our future depends on doing something big, something strategic.


iProtean subscribers, look for the new advanced Mission & Strategy course Affiliation and Consolidation Strategies, Part One in your course library this week.  The course features Marian Jennings, Lisa Goldstein, Dan Grauman and Monte Dube discussing the importance of timing when considering consolidation, the continuum of options and emerging models.

Health futurist and medical economist Jeffrey C. Bauer, PhD is an independent speaker and consultant based in Chicago. (jeffbauer@mindspring.com; 773-477-9339).  As an industry thought leader with 40+ years experience in medical education and care delivery, he forecasts the evolution of health care and develops practical approaches to improving the medical sector of the American economy.  He is widely known for his specific proposals to create an efficient and effective healthcare delivery system through multi-stakeholder partnerships and other initiatives focused in the private sector.  Dr. Bauer is featured in the iProtean courses The New Healthcare Business Model, Introduction to Mission & Strategy and Strategic Planning.


For a complete list of iProtean courses, click here.



For more information about iProtean, click here.