Stanley Feld M.D., FACP, MACE Menu

All items for August, 2006

Permalink:

Medicare Backs Off! Maybe.

Stanley Feld M.D.,FACP, MACE

Astonishing events have occurred in the last 2 weeks. On April 27, 2006 CMS published the new regulations for a change in DRG effective October 1, 2007. The New York Times published an article about the change on July 24, 2006. DRGs reflect hospital costs to the healthcare system.

Eighty percent of the costs of care to the healthcare system are the result of the treatment of complications of chronic disease. Eighty percent of those dollars are spent in the hospitals for complicated procedures. If we have any hope of Repairing the Healthcare System, we need to decrease the complications of chronic disease and keep the patients out of the hospital.

The original formulas for the DRG system were created in 1983. It is antiquated. It has evolved into gross overpayment of hospital charges. The proposed new patch is to convert the DRG formula from reliance on hospital charges to the consideration of hospital costs. Not a bad idea. The charges for Dick Cheney’s implanted defibrillator were $30,000. The charge seems inflated and needs to be justified on a cost basis.

The problem is, how is Medicare going to figure out what hospital costs are? How are they going to figure out quality of care on the basis of costs? Was the analytic program developed by 3M created after a competitive bidding process? Does the program have defects? How are hospitals going to adjust to a change in system that they have figured out and profited from in the last 23 years? How are the device companies going to adjust to a change in their excellent margins?

Not surprisingly, the uproar from well funded lobbyists for hospitals and devices companies was loud and unrelenting. Everyone was yelling about the change in the DRG system including Senators and Congressmen.

On August 1, 2006, Mark McClellan tried to explain the changes in the DRG system in the midst of the firestorm of lobbying in Congress and direct to the public media advertising.

“The changes are designed to more accurately reflect hospital costs and reduce incentives for hospitals to treat only the most profitable patients,” said Mark McClellan, administrator for the Centers for Medicare and Medicaid Services.

Again, a good idea, if it does not destroy the Focused Factory Centers of Excellence some hospitals have created. The main issue here is how the costs of care incurred by the hospitals compare to the charges for care. This point always seems to get lost in the political rhetoric. My guess is the difference between costs of care verses charges for care are great. However, I believe the true difference will be difficult to obtain. Few hospitals and device companies have the desire or incentive to reveal the difference.

Medicare’s explanation of the of the shift in fees included the following statement;
“For example, if a patient needs a ventilator for more than 96 hours, hospitals can expect a higher payment than they would get now. However, if the patient needs a ventilator for less than 96 hours, the hospital may get less money than they would get now. Also, if a patient is admitted with seizures, the hospital would get a higher payment. But if that patient just had a severe headache, the hospital could see a lower payment.”

These explanations make no sense to me.
If the patient was on a ventilator for 95 hours, and you as a skillful physician were able to get him off the ventilator, your hospital would get less money than if the hospital kept the patient on the ventilator for 4 more hours. It seems to me that the incentives for less costly care are going in the wrong direction.
If one was admitted for a headache, for example, included in the differential diagnosis for the headache was a brain tumor, if the work up turned out not to be a brain tumor that would be wonderful for the patient’s prognosis. If the diagnosis was a headache, the hospital would get less money because the patient had a better prognosis. Does that make sense to you?

“We want to get the payments right, so each patient gets appropriate care,” McClellan said.

My belief is medical decision making should be made by competent physicians and not legislated by rules that do not work. Medicare should be concentrating on the price they pay hospital for care and how they can create incentives in the system to decrease the complications of disease so the cost of care decreases. They should not be fiddling with payment schemes that are bizarre and clearly create incentive for institutions to abuse the system.

On August 2, the government backed off; “Under intense pressure from health care lobbyists and lawmakers, the Bush administration says it will scale back and delay proposed changes in Medicare payments to hospitals that would have created clear winners and losers.”

“The proposals would have cut payments by 20 percent to 30 percent for many complex treatments and new technologies. Hospitals will instead see much smaller cuts or even small increases for many of those procedures. Some of the changes will be phased in over three years.”

The physician groups should be so lucky. We face 5% reductions per year across the board in a rigid payment system that does not encourage innovation to prevent the complications of chronic diseases.

Why do you think this happens?

  • Thanks for leaving a comment, please keep it clean. HTML allowed is strong, code and a href.

Permalink:

HCA; Is The Value of The Parts Greater Than The Value of the Whole? You Bet !

Stanley Feld M.D.,FACP,MACE

“Debt, sector trends may push HCA to sell some hospitals” was the title of the article in the Nashville Business Journal August 2, 2006.

“Under new ownership, HCA Inc. may use its time as a private company to spin off some of its slower-growth markets to pay down debt and reward investors before re-emerging on the public markets.” HCA executives deny this is the intent.
$20 billion dollars in equity ($31 billion sales price-$11 billion debt) was removed from the company and replaced with $5.5 billion plus $26 billion in debt. The article goes on to say that : The buyers hope to pay down their own debt with HCA’s $3 billion in annual cash flow before possibly taking the company back to the public markets.
HCA typically maintain 25% to 40% share in its markets to be able to create networks, have better negotiating power and create efficiencies of purchasing power. However, in a quick overview of DRG payments available online my first reaction is that HCA’s fees are higher than the average fees in the community.
The Nashville Business Journal points out: “The new owners could sell some assets as they attempt to withstand the strong headwind the industry faces. In addition to announcing its sale, HCA missed second-quarter profit expectations on weak volume and saw an increase in bad debt expense.”

The most important part of the statement is HCA missing its second quarter profit on weak volume and an increase in bad debt expense.

The Healthcare System faces many ills. A gigantic ill is that a noble profession has turned into a Big Business with all the greed we have experienced in other corporate businesses in the last 5 years.

The business of medical care should be efficient effective care on the ill with a strong emphasis of keeping people well and out of the hospital. Until we convert the former view of healthcare as a big business around to a service whose goal is to prevent illness the faster we will be on the Road to Repairing the Healthcare System. How is this accomplished with all the stakeholders being treated fairly and have the opportunity to be innovative and make a good profit? I believe the solution will be the use of common sense and common goals to align all the stakeholders incentives. I believe it will happen before the healthcare system breaks down completely.

  • Thanks for leaving a comment, please keep it clean. HTML allowed is strong, code and a href.

Permalink:

Look What is Happening Even Before the Ink is Dry on the HCA-KKR Deal

Stanley Feld M.D., FACP, MACE

Before I start, in paragraph 3 of the last blog there is a misprint; the words “going public” should be “going private”.

Even before HCA buyout is completed “Insurer,hospital at odds on rates”

“The blockbuster deal this week to take HCA Inc. private comes as the hospital giant conducts intense negotiations with insurer United Healthcare over proposed rate increases that, if not resolved by Sept. 1, could force as many as 850,000 Colorado residents to pick new hospitals and doctors.”

HCA and United Healthcare Insurance are not even close on agreed rates. I predict this is going to happen in every city all over the country where HCA has a significant hospital bed presence.

HCA’s present financial statements reflect relatively thin margins after debt service. The margins will just get worse after the buyout is complete since the debt service obligation increased by 15 billion dollars. It seems the only way for the survival of HCA is to increase their rates. The impact to the Repair of the Healthcare system can be predicted right now. The impending fiasco seems inevitable.

It is time for government officials to provide some real leadership. It is time to enact forceful and effective legislation to Repair the Healthcare System. It is time that the people demand this leadership from their elected officials.

It is long past the time to continue to create rules and regulations in an archaic bureaucratic hierarchy. The result is the creation of ineffective patches onto a broken system. The solution to HCA’s predicted strategy is to construct the new DRG payment system using community rating and stick to it. I mean a payment system that considers the actual cost of service in the community short of debt service and inflated overhead. A reasonable profit should be added to the community rated cost structure. It is ineffective to create a system that will consider the cost of services provided and include the exaggerated overhead and debt service of the institutions into the cost of service. Unfortunately, this would create a significant burden to HCA and to KKR’s investment, but it would decrease the cost of healthcare to society.

The non profit community hospitals with small debt will have a tremendous cost advantage even though they would collect less money than they would under the old DRG system. With a little increase in efficiency of delivering care and quality of care, these community non profit hospitals can drive down the cost of care even further. If they do they should be rewarded. There is little incentive in the system presently to reward providers for decreasing the complications of chronic disease. Unfortunately, it looks like the efficient focus factories will be penalized by the new DRG system, whereas the debt overloaded hospital systems will get their debt serviced by the government.

How do we, the patients, and potential patients, demand a system that is cost effective and driven by quality for the benefit of the major stakeholder, the patient? To me politics means power. Politicians need our vote in order to have power.

I also told you that no one else has been able to fix the healthcare system. <u>It is up to us</u>, the people, and our vote.

  • Thanks for leaving a comment, please keep it clean. HTML allowed is strong, code and a href.