iProtean—New Information on Differences in Health Spending

The Institute of Medicine (IOM) released a report Wednesday on the results of a three-year study by an “A-list” of 19 researchers to analyze variations in health spending. The researchers concluded that big health spending variations are largely driven by differences in the use of post-acute services (e.g., skilled nursing, home health, etc.) by Medicare beneficiaries and by higher prices that some hospitals and doctors charge commercial insurers.

 

Regional variations have long been noted as the culprit when examining big health spending variations, primarily because of research from Dartmouth Medical School in the early 1970s. This research has been analyzed and, recently, questioned in academic journals.  The IOM report affirms the Dartmouth research, but found that a large amount of variation remains unexplained. The 178-page report delved deeply into questions such as why it costs more to treat patients in some areas of the country than in others. The researchers did not provide definitive answers about regional variation, but did focus on areas they said warrant more inquiry.

 

Medicare

In Medicare, most of the variation, according to the panel, was due to spending in post-acute services such as skilled nursing facilities, home health care and long-term-care hospitals. The panel found that if variations among those providers were eliminated, the overall variation between different parts of the country would drop by 73 percent.

 

Removing the spending variation among hospitals, by contrast, would eliminate only 27 percent of the differences. Tests and procedures each explained only 14 percent of the variation between areas, and use of emergency departments and ambulances played no role.

 

Because Medicare has fixed prices for what It pays, differences among regions are due to more people being enrolled in certain services such as home health, getting care for longer periods, or being channeled into more expensive treatment options (for example, going into an inpatient rehab facility).

 

Commercial Market

The panel commissioned Harvard economist Michael Chernow to study the commercial market. He found that higher prices negotiated by hospitals, doctors and other medical providers were the key factor in regional variations, not increased use of medical services, and noted that 70 percent of commercial spending variation is due to different prices set by hospitals and doctors in different markets. The panel noted in its report that this is “most likely reflecting the varying market power of providers.”

 

IOM Recommendations

The IOM panel recommended that Medicare continue to use its financial leverage to make hospitals, doctors and other providers work more closely to either be rewarded or penalized based on how well and efficiently they care for their patients. Both bundled payments and accountable care organizations are payment mechanisms that encourage care coordination and both are either in the pilot stage or moving toward full implementation.

 

“A growing body of evidence leads to the conclusion that clinical and financial integration best positions healthcare systems to manage the continuum of care for their complex populations efficiently,” the report said. However, the authors noted that merging doctors and hospitals into larger groups—a trend that is being accelerated by Medicare’s pilot programs—carries the risk that those providers will use their increased market power to demand higher prices from commercial insurers.

 

(IOM Finds Differences in Regional Health Spending Are Linked to Post-Hospital Care and Provider Prices, Kaiser Health News, July 24, 2013.)

 

 

iProtean subscribers, the iProtean advanced Finance course Transforming Your Organization into an Integrated Delivery System featuring Marian Jennings, Lisa Goldstein and Dan Grauman helps put the variations in health spending discussion in context. If you haven’t taken the course yet, put it on your to-do list for this month.

 

 

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—Report on Pioneer ACOs

The first-year report card for the Medicare Pioneer Accountable Care Organizations (ACOs) shows that more plans saved money than lost, but also that some providers have decided to either exit the program or take a step back and move to the less risky traditional shared-savings model.

 

The Pioneer ACO model was designed for more advanced, higher-performing organizations. The 32 provider groups that signed up to be Pioneers agreed to generate more savings than traditional shared-savings ACOs. Some of the Pioneers also agreed to take on more risk. The upside was if they met their savings and care benchmarks, these providers would get a larger return on that effort. (“Pioneer Accountable Care Organization First-Year Results Include Savings and Losses,” Washington Health Policy Week in Review, Congressional Quarterly HealthBeat, July 16, 2013)

 

The Centers for Medicare and Medicaid Services (CMS) report noted that all 32 Pioneer participants did well on reported quality measures and earned incentive payments for their quality achievements. The Pioneer ACOs exceeded provider performance in traditional fee-for-service Medicare for all 15 quality measures in which comparable data are available, the agency said. (“CMS Names ACOs Leaving Pioneer Program,” Modern Healthcare.com, July 16, 2013)

 

Additional results noted in the report were as follows:

 

  • Of the 32 Pioneers, 18 had savings and 14 generated losses in 2012.
  • Of the 18 that saved money, 13 had a high-enough savings margin that they will get money from Medicare. They had a gross savings of $87.6 million, resulting in about $33 million savings for Medicare. Together, those ACOs shared in more than $76 million as a result of their coordination of care.
  • Of the 14 that generated losses, two plans that had agreed to take on more risk had high-enough losses that they will owe Medicare money.
  • For the more than 669,000 Medicare beneficiaries who belong to Pioneer ACOs, costs to treat them grew by 0.3 percent in 2012, compared to costs for similar beneficiaries outside the ACO model, which grew by 0.8 percent.

 

CMS attributed part of the savings to reduced hospitals admissions and readmissions.  (“Pioneer Accountable Care Organization First-Year Results Include Savings and Losses,” Washington Health Policy Week in Review, Congressional Quarterly HealthBeat, July 16, 2013)

 

CMS said that Primecare Medical Network, University of Michigan, Physician Health Partners, Seton Health Alliance, Plus (North Texas Specialty Physicians and Texas Health Resources), HealthCare Partners Nevada ACO, HealthCare Partners California ACO, JSA Care Partners and Presbyterian Healthcare Services will not continue in the second year of the Pioneer program. (Plus and Presbyterian do not intend to transition into the Medicare Shared Savings Program, according to Modern Healthcare staff interviews with their executives.)

 

Despite the news that nine Pioneers won’t continue in the program for year two, CMS emphasized the improved quality that Pioneer ACOs provided in the first performance year. For example:

  • 25 of the 32 participants generated lower risk-adjusted hospital readmission rates for their beneficiaries against the benchmark rate for all Medicare fee-for-service beneficiaries
  • Better performance on clinical quality measures that assess low-density lipoprotein (LDL) control for diabetic patients.

 

(“CMS Names ACOs Leaving Pioneer Program,” Modern Healthcare.com, July 16, 2013)

 

 

iProtean subscribers, for more on accountable care organizations, please watch Value-Based Purchasing & Accountable Care Organizations, featuring Nate Kaufman, Dan Grauman 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—Hospitals’ Health Today

Hospitals and health systems appear to be stronger and healthier today than three years ago, according to a recent Moody’s Investors Service report, and better prepared to withstand the changes in reimbursement under the Affordable Care Act (ACA).

 

“Though total debt outstanding has increased since the recession, there has been a notable improvement in three key liquidity and cash flow metrics, including absolute cash balances, cash-to-debt and debt-to cash flow. More liquidity provides a buffer against less revenue per procedure as the industry transitions to a value-based reimbursement system from a long- standing volume-based system.” (“Not-For-Profit Hospitals: Buffered by Strong Liquidity and Cash Flow Metrics,” Healthcare Quarterly, Moody’s Investors Service, July 2013)

 

Despite the overall improvement in these key metrics, the not-for-profit hospital industry is quickly becoming bifurcated, the author noted. Although healthcare reform will significantly disrupt reimbursement for hospitals of all sizes, those with less than $500 million in revenues are and will be in a weaker position. Smaller hospitals:

  • Tend to have less negotiating leverage than larger facilities when contracting with payers and vendors
  • Have difficulty recruiting and retaining physicians
  • Are less able to afford the comprehensive information technology systems needed to meet new regulatory requirements.

 

 

Key Events Affecting Outlook for Not-for-Profit Hospitals

 

Medicare Trust Fund

Moody’s also noted a credit positive “event” for not-for-profit hospitals: the recent announcement about the extension of solvency of the Medicare trust fund from 2024 to 2026. The primary driver for the extension is lower Medicare spending growth in 2012 and lower spending-per-beneficiary in recent years. (Medicare is the single largest payer for most hospitals—44% of gross revenue on average.)

 

The new projection reduces the incentive for Congress to make additional cuts to the Medicare program, the author said in a recent Moody’s report, noting that “the propensity of the federal government to cut Medicare reimbursement is a function of the size of the federal budget deficit and the projected solvency of the Medicare Trust fund.”

 

But in addition to trust fund solvency, Congress may be looking at lower Medicare and Medicaid spending growth over the last three years and the corresponding reduction in healthcare inflation. Spending reductions/cost control and operational efficiencies seen in hospitals in the last three years have contributed to the reduction in healthcare cost inflation (see iProtean blog Health Spending and the Economy, April 30, 2013).

(“Sector Comment: Extending Medicare Solvency Pares Future Cuts: Credit Positive for Not-For-Profit Hospitals,” from U.S. Public Finance Weekly Credit Outlook, Moody’s Investors Service, June 6, 2013)

 

Large For-Profit Hospital Systems’ Consolidation

Finally, Moody’s noted that Tenet Healthcare Corporation’s acquisition of Vanguard Health Systems, Inc., is a credit negative for not-for-profit hospitals because it increases competition, particularly for small standalone hospitals.

 

As has occurred in many markets, stronger for-profit operators “disrupt longstanding market dynamics and physician allegiances.” Tenet’s acquisition will give it greater market power, putting smaller hospitals at risk given their challenges with physician retention, lack of negotiating leverage and an inability to achieve savings through economies of scale.

 

The merger also strengthens Tenet’s ability to make acquisitions of not-for-profit hospitals. (“Tenet’s Acquisition of Vanguard Will Increase Competition Against Not-for-Profit Hospitals,” from Credit Outlook, Moody’s Investors Service, July 1, 2013)

 

iProtean subscribers, for a refresher on financial analyses related to a hospital’s health and credit rating, see Hospital Financial Statements & Ratios, a foundational course featuring Lisa Goldstein and Marian Jennings. These experts, plus Nate Kaufman, are also featured in two advanced Finance courses slated for publication later this year: Making Difficult Decisions about Programs & Services, a Portfolio Approach Part One and Two.

 

 

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—Price Transparency

A few weeks ago the media reported extensively on the CMS release of hospital price data. The coverage emphasizes the need for hospitals to provide meaningful price information to patients and communities. Joseph Fifer, HFMA president and CEO, noted, “For price information to be meaningful to patients, it should focus on a patient’s financial obligation—what that individual is expected to pay—and not merely charges.”  (“Developing a Path to Price Transparency,” HFMA’s Healthcare Finance Strategies, June 26, 2013)

 

HFMA’s Strategies for Enhanced Price Transparency

 

HFMA has an ongoing project that focuses on developing a pricing system that 1) is simple to administer and communicate, 2) enhances the patient experience as patients take greater charge of healthcare purchasing decisions, and 3) gains consumer trust as they seek to compare hospital/healthcare service prices. As part of this project, HFMA has suggested five action steps for price transparency.

 

Develop a well-defined, rational and competitive pricing philosophy, strategy and structure.

Such a philosophy should guide policy decision-making, redesign and updates. Examine approaches that mitigate the impact of pricing changes under Medicare and Medicaid payments and regulations, and adopt a pricing strategy or discount policy that makes discounts available to patients with limited financial means. Ensure that the pricing system is simple to administer and communicate to various stakeholders, including members of the general public, and that the framework for the pricing system is rational and defensible in relation to objective benchmarks, such as cost and market price.

 

Develop formal, written policies and procedures for providing patients with written estimates of their expected financial obligations for both inpatient and outpatient care, and be clear about what the estimates do and do not cover.

Make one department responsible for these transactions. Gather financial information in advance about the patient and identify and assist patients who may qualify for charity care or government programs. When hospitals establish patients’ financial obligations for their hospital bills before treatment occurs, both the hospital and the patient benefit from the transparency.

 

Negotiate with insurers to remove contractual barriers to rational pricing methods. Achieving meaningful transformation of the hospital pricing system to facilitate price transparency is a vastly complex endeavor, requiring collaboration among providers, payers, government, employers and consumers. Posting a copy of the chargemaster does not provide a meaningful tool for patients (and others). Encourage payers to make available on a real-time, electronic basis information about coverage, benefits, non-covered services, copayments, and patients’ deductibles, coinsurance and maximum out-of-pocket obligations.

 

Enhance awareness and understanding of the need for greater price transparency among employees.

Ensure that staff knows how to help patients learn the estimated cost of inpatient and outpatient care within the organization as well as their estimated financial obligations for care and services received. Use scripts and role playing tailored to the needs of patients in different settings, such as emergency and outpatient departments, to train employees about how to communicate financial information.

 

Continually improve your organization’s cost-accounting competencies.

Invest in business intelligence and costing systems that enhance the organization’s ability to capture, track and analyze costs for specific procedures or processes such as costs related to labor, supplies and other expenses. Costing data should be accurate, timely, appropriate and reported in a useful manner. Then, use the data to support decision making related to establishing charges and improving value such that the relation to charge, cost and price is meaningful and understandable to the patient and community.

(“Developing a Path to Price Transparency,” HFMA’s Healthcare Finance Strategies, June 26, 2013)

 

iProtean has released three new advanced Finance courses this year. Two more are slated for publication in September and October—Making Difficult Decisions about Programs & Services, a Portfolio Approach Part One and Two.  These courses feature Marian Jennings, Lisa Goldstein and Nate Kaufman.

 

 

iProtean Subscribers: iProtean is growing and we’ve enhanced our learning management system to keep pace. The new design is more intuitive, contains more features and is easier to navigate. We believe this will enhance your experience. Please sign in and check out the new features!

 

 

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—Effective Board Education

Governance practices in the for-profit sector are not much different from those in the hospital/health system not-for-profit world. Consider this on board education from Deloitte Center for Corporate Governance:  “Today’s boards of directors are facing an unprecedented level of scrutiny and pressure from shareholders, the media, institutional investors, and other stakeholders.  Boardroom training and development are fundamental elements in enhancing board effectiveness and can help board members be better prepared to tackle uncertainty.  An effective board education program offers ongoing educational opportunities that help board members continuously cultivate skills that enhance the overall effectiveness and performance of the board.” (“Hot Topics: What does an effective board education program look like?” Deloitte Center for Corporate Governance, Corporate Governance Monthly, June 2013.)

 

Summary Points

  • Board “negligence,” both in not-for-profit and for-profit organizations, makes headlines. 
  • Board education continues to be the most effective antidote to board underperformance/negligence for both for-profit and non-profit boards.
  • The amount of information available to boards is so voluminous that often it is counterproductive.
  • Education experts recommend that the information be delivered in small increments rather than a deluge of white papers, special reports, presentations and seminars.
  • In the not-for-profit hospital governance arena, new Internet-based technologies allow individual board member education sessions that can also migrate to full board education presentations.
  • These technologies require true engagement on the part of the individual board member—personal initiative to keep up-to-date on the most pressing issues organizations face both today and in the future.

 

 

The Deloitte authors wrote that many for-profit company boards only recently began formal board education programs, primarily because risks have increased and board members have come under increased pressure—and boards under increased scrutiny.

 

Board “negligence” involving for-profit companies as well non-profit organizations makes headlines.  Consider the many corporate scandals over the last decade, and then consider the recent news about hospital/system CEO incentive bonuses and the moderate firestorm it has ignited in the media and in Congress.

 

Board education continues to be the most effective antidote to board underperformance/negligence for both for-profit and non-profit boards. Effective board education, however, requires full board participation and engagement in the education process, not a perfunctory nod to board orientation manuals and other traditional “check the box” education activities.

 

Deloitte writes that effective board education includes both initial and recurring director training on a wide range of topics—from “onboarding” to continuing education to updates on emerging issues. Board education allows organizations “to continuously invest in and significantly enhance the knowledge and readiness of the board and the overall organization.”

 

But board orientation should go beyond the basics (organization charts, charters and bylaws, code of ethics, financial statements, meeting minutes) to include information about the roles and responsibilities of board members themselves and how to govern effectively. And for new board members as well as those who have served on the board for several years, the amount of information available is so voluminous that often it is counterproductive.

 

Information about how to govern and, equally important, information about the environment in which the organization conducts its business (including laws and regulations, market dynamics, strategic issues, etc.) should feature prominently on the board education curriculum. For any board education program—either orientation for new board members or continuing education for experienced board members—providing the appropriate information can be tricky.  Too much can be counterproductive; too little ultimately is useless. Education experts recommend that the information be delivered in small increments rather than a deluge of white papers, special reports, presentations and seminars.

 

Use of Technology in Board Education

The Deloitte authors noted the emergence of technology as a delivery mechanism for board education, “allowing for more options in the delivery of training and development programming.” Technology, along with in-house facilitation of education sessions (taught by someone on the board or within the organization), learning events facilitated by a third party and external sessions (symposia, conferences, etc.) provide a hybrid approach that tends to be most convenient and effective for the board.

 

In the not-for-profit hospital governance arena, new Internet-based technologies allow individual board member education sessions that can also migrate to full board education presentations. A board member can view a short program (typically interactive) on his/her own time and that same program can be presented to the board as a whole for further discussion and application to the organization’s own specific issues/challenges. These technologies require true engagement on the part of the individual board member—personal initiative to keep up-to-date on the most pressing issues organizations face both today and in the future.

 

“There is widespread agreement that ongoing education is important for maintaining an up-to-date and effective board,” the Deloitte authors noted. The New York Stock Exchange (NYSE) Corporate Governance Rules require listed companies to publicly disclose their policy on continuing education and orientation for directors. While the NASDAQ does not currently have a similar mandate, it does suggest as a recommended practice a comprehensive orientation and continuing education of board members.

 

 

iProtean Subscribers: iProtean is growing and we’ve enhanced our learning management system to keep pace. The new design is more intuitive, contains more features and is easier to navigate. We believe this will enhance your experience. Please sign in and check out the new features!

 

The iProtean library of both foundational and advanced courses for board members offers in-depth education and information on basic practices and emerging issues of critical importance to hospital/health systems. The importance of board education itself is covered in several of the Governance courses featuring Barry Bader, Lawrence Prybil, Ph.D. and Anne McGeorge.

 

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.