Stanley Feld M.D. FACP, MACE

I have been asked this question many times. Many friends and colleagues all over the country have said to me;
“It is hopeless!”
“There will be no solution in our lifetime.”
“Good luck.”
“You are wasting your time.”
“We are too far down the road to be able to save this puppy.”
“The politics and economics are out of the control of physicians and patients.”

All of the above may be true. However, I believe it is essential that the healthcare system be repaired. I also believe it can be repaired. Any contribution that can made to it repair will be gratifying to me.

What makes me think I can do anything about Repairing the Healthcare System?

• I did something like this when I joined the American Association of Clinical Endocrinologist steering committee. As Woody Allen said in one of his movies, 80% of it is showing up. I showed up and became the third president of a nascent organization of 26 Clinical Endocrinologists from all over the country. These Clinical Endocrinologists were totally focused on putting the Clinical Endocrinologist on the medical map. Before AACE, the Clinical Endocrinologist was not a household word. I, to my amazement, helped, put the Clinical Endocrinologist and Clinical Endocrinology on the medical care map. Clinical Endocrinology is a great subspecialty of Internal Medicine. It was not recognized by Medicare as an essential medical subspecialty. We helped change that by publicizing the services and special training of the Clinical Endocrinologist to organized medicine, the government, the insurance industry and the patients. Most of the Clinical Endocrinologists in the country stepped to the plate to help create this recognition of their subspecialty. If I could help fix that situation, then fixing the healthcare system should not be a problem. The method is all a function of heightening awareness, and capturing the imagination of all of the stakeholders. If we could all focus on a higher goal of excellent medical care at an affordable price rather than improving the financial results of constricted vested interests, all of the stakeholders could all flourish with the minimum of pain and maximum creativity.

• My wife says I am an eternal optimist in every area of my life. I believe optimism is healthy, and vital to constructive and creative change. It is the American way! Every problem can be solved, if we understand the components that created the problem.

• I was taught that when you see a pattern do not be afraid to describe it. When I was an endocrine fellow at Massachusetts General Hospital in Boston, I saw a case that was never described. My attending said, “If you see something no one else sees describe it. It may make a contribution to our knowledge base and improve medical care in the future.

• I have always tried to understand the “why” behind the symptoms rather than simply act to fix the symptoms. As knowledge increases the patterns of the “why” something happens has become obvious. I believe it is because of the constant search for “why” something happens and not simply responding to the event. You will note that much of the media discussion is about responding to events and not the search for the reason for the event.

• I believe that America is a land of great opportunity. Things beyond belief can be accomplished if you believe you can accomplish them. The freedom of life, liberty and the pursuit of happiness is the engine that has generated America’s phenomenal accomplishments over the past 230 years. I have often told my sons; “If you are not on the edge you are taking up too much space.”

• As our society and government have become more complex some of the parts of America’s freedom engine have become ossified by bureaucratic hierarchies. Other parts of our freedom engine are as frictionless as they were in 1776. We were founded by optimists, a pioneer outlook and an entrepreneurial spirit. The goal presently should be to recognized the ossified parts and oil or replace them. The American people have the will to do it, if they only knew what to oil or replace.

• We live in an era that promotes a short attention span. Most of our news media is delivered by sound bites. Much is the information is unscientific disinformation as describe in Fooled by Randomness. Marshall MacLuhan described it beautifully in the Global Village and The Media is the Message. I am convinced Americans are smarter than this. Unfortunately, the medical care system is about to collapse. We have to start concentrating on the facts beyond the sound bites and demand solutions.

• America’s optimism, pioneer outlook and entrepreneurial spirit, invented the internet and Real Simple Syndication. RSS is reinventing how we communicate. The internet makes all source materials available at our finger tips. I remember in college the hours spent in the library searching for a obscure event or fact. Google finds it for me in 10 to 20 seconds. We do not have to rely on manipulated media driven by commercial vested interest.

• It seems to me with freedom of speech and advancing communication systems (RSS), eventually Americans will understand what has to be done to the healthcare system before it is too late. Someone usually comes along with a BIG IDEA at the right time. The BIG IDEA catches on like a grass fire. The demand for change can occur overnight. Some of you may remember the growth of the fax machine use. Its adoption occurred overnight. At the beginning of December 1982 few offices and homes had a fax machine. At end of December, all the fax machines were sold out and the back orders were huge.

• The BIG IDEA in medicine is personal responsibility for ones’ health and ones’ health care dollar. Neither the government, the insurance industry nor hospital systems should be responsible for our healthcare, our access to healthcare, or of control our healthcare dollar. We should and need to be responsible for our own care. We need the insurance industry and government to set some rules in the major stakeholders’ favor and let the market take over. A system needs to be put into place where we and not the secondary stakeholders control our destiny.

My blog is about us as a people getting to that position. I do not think the concept is difficult to understand or execute. However, no one is going to do it for us. We have to create the demand for it to be done.

Stanley Feld M.D.,FACP,MACE

• The patient is the most important stakeholder in the healthcare system. The physician is next. They are the primary stakeholders.
• There would be no need for a healthcare system without patients and physicians. 
• The government, the insurance industry, the employer, and the hospital are facilitator stakeholders. They are the administrators of the patients’ healthcare dollars. They are the secondary or facilitator stakeholders
• Patients should be the administrator of their healthcare dollars.

It is easy to notice that most of the discussion in the media is about the facilitator stakeholders:

• HCA going private.
• HCA fighting with United Healthcare.             
• Government changing DRG system to reflect hospital cost rather than hospital charges.
• Insurance industry raising fees on health insurance.
• Insurance industry restricting health insurance on self employed sick patients.
• Hospitals have multiple tier fee schedules with uninsured charged the most.
• Hospitals and medical device companies fighting off the government price reductions.
• The government lowering physician payments.
• The government mandating electronic medical records.
• The government developing a pay for performance plan.

Unfortunately, we have been programmed to be information junkies. The media feeds scandals to us. We hunger for media reports. This media circus keeps us in a constant state of fear and anxiety. States of fear and anxiety are bad for our health. We also miss the essential questions:

• How do we reduce the cost of medical care?
• How do we provide affordable insurance for the 45 million people uninsured?
• How to we provide affordable medical care coverage so that all the patients can have access to medical care?
• How do we align all stakeholder incentives?
• How do we construct a system so that all the stakeholders make a reasonable return on investment?
• How do we close the holes in the system to eliminate abuse by stakeholders?
• How do we restore trust between stakeholders?
• How do we restore trust between the patient and physician?
• How do we stop secondary facilitator stakeholders from continuously destroying the patient physician relationship?

I have suggested some solutions in the past few months. I will cover these solutions in greater detail shortly. Developing methods to achieve the solutions are in themselves business opportunities that can help society. The appropriate use of information technology can help greatly. These solutions have to be coordinated and introduced simultaneously. Unfortunately, the government with its present administrative structure and political influences will find it difficult. The solutions have to be market driven by the customer (the patient) in order to be accomplished. The patients have the power to drive the solutions with the government’s help:

• Price transparency is an essential beginning. No only must the retail price be published but all of the discounted prices. The net effect of this complete transparency will be lower the prices paid on some services. I can visualize debate going on for several years with no resolution under the present systems. The voters must say we want real Price Transparency
• Elimination of a two tier payment system with hospitals receiving more for procedures than outpatient physician office payments for the same procedure.
• Consumer driven healthcare using Medical Savings Accounts and not Health Savings Accounts.
• Develop Centers of Excellenceand Focused Factories both Hospital based and Outpatient Clinic based. Payment for service for hospital and outpatient clinic should be the same for educational services.
• Payment for early evaluation and recognition of chronic disease
• A sophisticated information system connecting the cost of medical care with financial outcomes and not simple incorrect algorithms to measure procedures needed for quality of care to be accomplished. 
• Disease management to lower the complication rate for chronic disease and reduce the cost to the healthcare system by more than 45%.

These solutions have to be instituted with authority and leadership.

Responsibility for follow up care and compliance must be in the hands of the patient. The physicians are the teachers educating patients to be experts in their disease self- management. If patients do not comply there should to be a monetary as well as a quality of life penalty. The patient has to;

·         Be responsible for the purchase of care.

·         Have ready access to care.

·         Be responsible for the appropriate compliance for care and medication regime given by the physicians

If this is accomplished, and it can be, with the appropriate leadership and will of the public, we can turn this ship around.

Stanley Feld MD,FACP,MACE

Mark McClellan declared that 90% of Medicare costs are spent on the complications of chronic diseases. The Institute of Medicine has published that evidence based medicine for chronic disease is only practiced 10% of the time.

Osteoporosis and Diabetes Mellitus are two of the chronic diseases of the 5 big chronic diseases that clinical Endocrinologists’ have exceptional expertise in. These two diseases absorb a large part of the Medicare dollars. Osteoporosis and its complications absorb 20 billion dollars per year in direct costs. Diabetes Mellitus and its complications absorb 120 billion dollars per year in direct costs.

Evidence based medicine has demonstrated that with effective diagnosis, treatment and patient adherence to treatment of these diseases, we can reduce the complication rate by at least 50%. If 90% of the dollars for these two diseases are spent on the complications of these diseases, then 50% of 90% is 45% savings to the healthcare system. If we could translate evidence based medicine to clinical practice, we would save of 9 billion dollars for osteoporosis and 54 billion dollars for diabetes mellitus.
The total savings of 60 billion dollars would go a long way to repairing the Financial difficulties of the healthcare system. It would also go a long way to improving the quality of care for chronic disease in this country.

The distortions in the DRG system that evolved over the last 23 years must be fixed. Medicare was going to do something about it.

However, Medicare backed off by the weight of a well organized hospital association’s and medical device manufactures’ lobbying effort. Medicare backed off quickly as a result of this political effort. Medical care should not be politically driven nor its fate be decided by the vested interests of secondary stakeholders.

The solution to the medical cost problem is creating Centers of Excellence and Focused Factories. Systems of Care have been developed decrease or eliminate the complications of chronic disease.
Medicare has to reduce prices of the DRGs because it simply can not afford to pay the rising prices created by the old DRG system. Medicare has to reformulate a new DRG system. The excessive DRG charges are the main source of the uncontrolled healthcare costs to treat the complications of chronic diseases.

Who is the next candidate for a cut in fees? The physicians are of course. We are the most unorganized and least effective political force. We are losing members in the AMA and local organizations at a rapid rate. Unfortunately, the AMA has lost its effectiveness. Physicians have walked out with their feet and their dues.

I mentioned the 5.1% per year reduction until 2010. There is also a proposed cut in the payment for Bone Mineral Density testing. The BMD is the gold standard in the early diagnosis of osteoporosis. A note from the American Association of Clinical Endocrinologist states;

Dear AACE Member:
AACE is partnering with the International Society for Clinical Densitometry (ISCD) in conducting an online survey to respond to the Centers for Medicare & Medicaid Services (CMS) recently proposed dramatic cuts in reimbursements for DXA (from the current ~$140 to ~$40 by 2010) and Vertebral Fracture Assessment (VFA) (from the current ~$40 to ~$25 by 2010). These cuts will be in addition to the already-enacted imaging cuts outlined in the Deficit Reduction Act of 2005.

This survey must be electronically completed no later than Thursday, August 10.
However, only online surveys will be considered. Estimated time of completion for the online survey is 45 minutes”

I am sure many physicians would want to complete the survey. However, few have the time to devote 45 minutes in a day to complete the survey. The American Hospital Association and the Medical Device Manufacturers did not have to complete a survey for Medicare to back off. Why can’t Physicians do the same for the good of patient care?

If Medicare wants to increase the quality of care for chronic disease and decrease the complication rate, cutting the BMD fee is absolutely the wrong way to go about it. The proposed payment for bone density is lower than cost of service. It is counter-productive to the goal of developing centers of excellence for the diagnosis and treatment of osteoporosis.

From my experience, the present level of reimbursement is low for Bone Density testing. Medicare reducing the fee to $40 is not an incentive for Clinics to even think of doing Bone Densitometry and increasing their quality of care for a silent disease that only generates a chief complaint when the complications of the disease occur. The specialty seeing the most patients at risk for osteoporosis are Family Practitioners. Medicare should help develop centers of excellence for osteoporosis so the Family Physician can have incentive to diagnose and treat these patients before the complications of osteoporosis occur. Family Practitioners are struggling to survive. They are not going to create a Center of Excellence that loses money.

Another important question is how much Medicare is going to pay the hospital for a Bone Mineral Density. Remember Dr. David Westbrock’s knee story. Medicare paid the hospital 3 times the amount it pays for the same x-ray in a physician’s office.

Something is wrong with the administrative system, and the patches it applies simply make the healthcare system worse.

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?

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.

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.

Stanley Feld M.D., FACP,MACE

On the last two blog posts I covered the new paradigm Medicare had in the Federal Register for Hospital reimbursement. The goal was to base DRGs on hospital costs and not hospital charges. The reduction in revenue to certain hospitals would be as much as 33%. Specialty services such as Cardiac, Neurosurgical and Orthopedic services would be much affected. It turns out that 70% of hospital profits are derived from these three services.

“We are on the eve of a seismic change in revenue reimbursement for hospitals with the expected reconfiguration of diagnostic related groups as recalibrated by the Centers for Medicare and Medicaid Services”.

Paradigm Lost: The Strategic Impact of Revised DRG Payments
By Preston Gee, for HealthLeaders News, July 13, 2006

On July 26, 2006 HCA announced that it was going public and being bought out by KKR for 31 billion dollars. However, KKR, the Frist family, and Bain venture capital were going to put up only 5 billion dollars in cash and finance the rest along with the assumption of 11 billion dollars in debt.

The first question in my mind was perhaps KKR did not think this purchase through. KKR is a pretty smart outfit. I was sure they had thought it out from a cash flow standpoint. There is probably something in the new Medicare payment system that they know and we are not considering.

Private hospitals are not tax exempt. Non profit hospitals are tax exempt. Non profit hospitals have a cost advantage from the start because of the tax exemption. Private hospitals have big debt payments. Non profit hospitals have minimal to moderate debt service obligations adding to their cost advantage.

In the buyout, it looks like HCA- KKR is going to assume a debt service obligation of 25 plus billion dollars. The fees paid by Medicare are constantly being reduced. The new DRG payment system is going to be set up to pay inpatient hospital care by costs and not charges. With the new fee schedule it is hard to visualize how the debt will be serviced by KKR. It is worthwhile looking at HCA’s financial statements. If the debt is serviced, how are they going to generate profits for the LPs in the JV fund? Medicare hope is to reduce payments to hospitals for care by 30% of present levels with the new DRG formula.

The only way I can see HCA-KKR remaining viable is if there is a defect in Medicare’s new paradigm of payment for DRGs. The cost of care in the HCA institutions will go up because of the doubling of their debt. If they are paid on their cost of care and not the community cost of care, they will be able to maintain their profit margin while Medicare in effect is servicing their debt. The net result would be an increase in cost to the government. Since private insurance mimics Medicare private insurance payment to HCA-KKR will also increase. The pass through for this increase would ultimately be to the consumer and tax payer to the benefit of KKR.

If I am correct, rather then decreasing the cost of care through efficiency of care and an increased quality of care to decrease complications of chronic disease, we will see an increase in cost of care.

HCA has many hospitals in each large city. Let’s say 50% of the hospital beds in a city belong to HCAs hospitals. If patients do not choose to use HCA’s beds because of the increased hospital costs, then 100% of hospitalized patients will be competing for the remaining 50% of the beds in the city. This will create a bed shortage. This leverage can force the increase in payment for care to HCA. I have not seen one article about the consequences of this buyout to the cost of medical care.

It is just as I said. “Today’s solutions are tomorrow’s problems.”

Stanley Feld M.D.,FACP,MACE

I apologizing for forgetting to link the complete report; “Proposed changes to hospital inpatient prospective payment system” is in the Federal Register April 25, 2006. It is a formidable document. It has been predicted to revolutionize the way hospitals do business.

The New York Times Article goes on to say; The basic payment for surgery to open clogged arteries, by inserting a drug-coated wire mesh stent, would be cut by 33 percent, to $7,590. The payment for implanting a defibrillator, like the one used by Vice President Dick Cheney, would be cut 23 percent, to $22,000, while the payment for hip and knee replacements would be reduced 10 percent, to $14,500.

Drug and device makers have been lobbying Congress and the Bush administration to delay the changes to allow further analysis. Device makers are scheduled to meet with top White House officials this week. More than 200 members of Congress have signed letters supporting a one-year delay.

The charges should definitely be lined up with costs of service. These charges seem very high to me. The actual cost of the service, procedure and device should be calculated into the charge. We have seen some device charges to be extremely secretive. A reasonable profit should be added to the cost. The fee for the community is then determined. If one provider is more efficient than another provider the efficient provider should not be penalized. The efficient provider should be rewarded by the extra profit. If costs go down then the charge will go down.

The New York Times Article goes on to say; The goal of the new payment system is to pay hospitals more accurately for the cost of care. But Jayson S. Slotnik, director of Medicare policy at the Biotechnology Industry Organization, a trade group, said that payments would, in many cases, be less accurate because the government had relied on old hospital cost reports and claims data that did not reflect the use of new technology.

Without a delay, Mr. Slotnik said, hospitals can expect to see a 35 percent reduction in Medicare payments for stroke patients treated with clot-busting drugs. The basic payment for such cases is now $11,578.

Is this the actual cost of service plus a reasonable profit or the distortion created by the DRG payment systems? Are these distortions leading to profits that have enabled hospitals to be make vast improvements in their infrastructure and facilities?
Physicians treating patients are not aware of these distortions when they order the procedures to practice the best medicine they can. Physicians only see the decreases in payment they receive while experiencing and increase in overhead. Physicians experiencing a decrease in net profit should be thinking about how to become more efficient and decrease their overhead.

The hospitals taking care of less profitable diseases should be encouraged to develop centers of excellence for those less profitable disease, so they can become more efficient and in turn more profitable.

Mark B. McClellan Medicare administrator said in an interview “If you take a big step back and look at Medicare spending, 90%-plus of what we are spending is going for the complications of chronic disease.” He goes on to say “We can get healthier beneficiaries and lot lower costs related to complications if we can get more prevention.”

A problem in the system is we do not provide reimbursement for prevention. We will discuss this in detail in the future.

In Focused Factories, the system has an increased chance of experiencing less complications from diseases and procedures than in a general care facility. We should be encouraging “Focused Factories” and not discourages them.

There is much more to say about this article. These new rules can lead to more dysfunction in the healthcare system as well as a decrease the quality of care. However, prices paid for DRGs have to be aligned to be more realistic with the actual cost the hospital accrues for care. This will be extremely difficult to obtain voluntarily. In a consumer driven environment, the consumer can demand this price transparent.

Stanley Feld M.D.,FACP,MACE

An article “Bush Administration Plans Medicare Changes” in the New York Times on July 17, 2006 illustrates the point I made previously. This article needs to be read carefully by all. It is especially confusing to the consumer who should be driving the repair of the healthcare system. The complete report; “Proposed changes to hospital inpatient prospective payment system” is in the Federal Register April 25, 2006

I believe the government is trying to do the right thing from the hospital cost of service viewpoint. Hospital DRG fees are exorbitant. It is doing the wrong thing from a quality of care point of view. In my opinion, the DRGs should reflect the hospitals cost plus a reasonable profit. Presently, certain DRGs are too low and others are much too high.

Michael Levittt, the Secretary of Health and Human Services, said “the new system would be more accurate because payments would be based on hospital costs, rather than on charges, and would be adjusted to reflect the severity of a patient’s illness. A hospital now receives the same amount for a patient with a particular condition, like pneumonia, regardless of whether the illness is mild or severe.”

This new approach is a good thing, because then hospital costs for service will be transparent. Hospitals will have the incentive to become more efficient if their costs are too high to make a reasonable profit. We have established previously that charges are artificial retail prices.

Federal officials said that biases and distortions in the current system had created financial incentives for hospitals to treat certain patients, on whom they could make money, and to avoid others, who were less profitable.

Dr. Alan D. Guerci, president of St. Francis Hospital in Roslyn, N.Y., said the new formula would cut Medicare payments to his hospital by $21 million, or 12 percent. “It will significantly reduce payments for cardiac care and will force many hospitals to reduce the number of cardiac procedures they perform,” Dr. Guerci said.

The first statement is misleading because the charges have nothing to do with the treatment of certain diseases. It has to do with distortions in reimbursement caused by the DRG reimbursement system. Additionally, everyone would love not to have to treat certain diseases that are less profitable. This is why our system is broken. The two thirds of the uninsured are uninsured because they are individuals group insurance plans are in their 50’s with hypertension, and obesity. They cannot buy insurance even if they wanted to because the insurance company views them as too high a risk for complications of their underlying chronic disease.

Regina Herzlinger in her book Market Driven Health Care advocated Focused Factories. Focused Factories are a great idea. The best example is a proprietary hospital in Canada that only does hernias. The hospital can do hernias cheaply, efficiently and still generate a healthy profit. The focused factory has developed a system of care (process of care) and experience treating many hernia patients resulting in few complications and short length of stay in the hospital. The hospital can therefore afford to do hernias more cheaply than the traditional hospital reducing the cost of care.

Focus Factories such as this one can serve as a model to stimulate an increase in quality care throughout the healthcare system. Hospitals and Clinics concentrating on full service care for each chronic disease (Focused Factories) are an excellent idea. Inpatient and Outpatient Focused Factories are one of the solutions to Repairing the Healthcare System.

You will recall I said 80% of the healthcare dollars are spend on the complications of chronic disease. Medicare claims that 90% of its’ healthcare dollars are spent on the complications of chronic disease. Focused Factories developing Systems of Chronic Disease Management using evidence based medicine can reduce the complications of chronic disease by at least 50%. The result would be a savings of 40% of the total healthcare dollars spent ( 50%*80%=40%).

St Francis Hospital in Roslyn N.Y. is a small hospital that had a difficulty competing with Long Island Jewish Hospital and North Shore Hospital, very close and powerful neighbors. Twenty-five years ago the hospital decided to build a strong Cardiac Treatment Center. It built a “Focused Factory” for Cardiac Disease. It sounds like it is going to get penalized for developing this center of excellence. I do not know what the difference between their cost of service rendered and charges is, or the differences in charges between it and its competitors. However, if the actual cost of service is in line with the cost of service in the community it should not be forced to reduce their emphasis on Cardiac Care to take on less profitable diseases. This will diminish the quality of service in the community.