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Another Complicated Mistake Coming Up !

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.

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