Hospital Governance Issues in Israel

I am currently in Haifa, Israel, addressing a conference being held by the Israel National Institute for Health Policy Research entitled "Governing Hospitals." Here's the summary of the program:


As explained here, Israeli hospitals come in several varieties. An excerpt of the context:

Israel has a national health insurance system that provides for universal coverage. Every citizen or permanent resident of Israel is free to choose from among four competing, non- profit-making health plans. The health plans must provide their members with access to a benefits package that is specified within the NHI Law. The system is financed primarily through taxation linked to income (through a combination of earmarked taxes and general revenue). The Government distributes the NHI funds among the health plans according to a capitation formula which takes into account the number of members within each plan and their age mix.

The Ministry of Health has overall responsibility for the health of the population and the effective functioning of the health care system. In recent years the Ministry has developed strong capabilities in the areas of health technology assessment (HTA), the prioritization of new technologies, health plan regulation, quality monitoring for community-based care, and strategic planning to set goals for population health, along with strategies for achieving them.

In addition to its regulatory, planning and policy-making roles, the Ministry of Health also owns and operates about half of the nation’s acute care hospital beds. The largest health plan operates another third of the beds, and the remainder are operated by means of a mix of non-profit-making and profit- making organizations.

As you might expect, therefore, the questions of hospital governance in this country are complex and multivariate. It is impressive, therefore, that this conference was organized to provide the leaders of the hospitals with a chance to join together and consider future directions.

Speakers included Richard Saltman, from the Department of Health Policy and Management at Emory University, and Dr. Antonio Durán, from the Andalusian School of Public Health in Sevilla, Spain. You see them here with one of our hosts, Schlomo Mor-Yosef, Director General of the Hadassah Medical Organization. Nigel Edwards, from the UK's NHS, was supposed to attend but got busy with the issues mentioned above and sent a video of his remarks.

Professor Saltman summarized European efforts to restructure how public hospitals are governed. Starting with the introduction of self-governing trusts in England in 1991, policymakers in a number of countries have sought to design more independent decision-making capacity into public hospitals. The goal has been to generate more innovative and entrepreneurial behavior, while simultaneously preserving the social advantages that accompany publicly operated institutions.

Dr. Durán discussed the Spanish experience, noting that the country has explored various hospital self-governance arrangements over two decades. It has done so, however, via ad hoc, politically-driven, last-minute legislation, resulting in a confusing regulatory framework, with national and regional norms superseding each other. Various self-governing hospitals with different ownership status, legal characteristics, and degrees of autonomy and accountability now co-exist with traditionally managed public hospitals.

My talk was on the evolution of governance of US hospitals from a traditional focus mainly on financial management to an expanded view of a board's fiduciary responsibility, with a concern for issues of quality, safety, and efficacy of clinical care. My theme was that a well-functioning governing body can enable hospital leaders and management to harness the experience, wisdom, and judgment of members of the community to build a stronger hospital.

By the way, someone pointed out today that there is no Hebrew word for governance, making it an elusive concept here, perhaps culturally as well as linguistically. This suggests that some degree of flexibility will characterize the evolution of this concept in this country. But let's not be purists about this. After all, even in other parts of the world where governance is clearly part of the vernacular, it is not universally well executed. This conference suggests that we all can learn from one another.

Why do we need a regulatory crosswalk?

In a post below, I talked about the unfortunate marketability of a book that explains The Joint Commission standards in plain English -- both for the hospitals it surveys and for its own surveyors. Now arrives another email with an ad for a $399 service called Patient Safety Monitor, that, among other things, allows you to:

Find and compare state, CMS, and Joint Commission regulations on high-profile patient safety issues such as:

• Verbal Orders;
• Critical Test Results;
• Handoffs
• Infection Control: Hand Hygiene

I don't want to get into the issue of state regulations today, but the idea that you might pay for a service to provide a "crosswalk" to help you reconcile CMS and Joint Commission regulations is troubling.

The CMS Conditions of Participation are basically the terms that make a hospital eligible to see Medicare patients, and by extension, other patients whose bills are paid by private insurers. In essence, you can't stay in business as a hospital if you do not satisfy the Conditions of Participation.

The Joint Commission has been delegated "deeming authority" by CMS to review a hospital's compliance with the Conditions of Participation.

So should there be any difference between the reviewing standards of the JC vis-à-vis that of CMS? If there is no difference, why is this service being sold? If there is a difference, we have a troubling difficult situation.

The advertised service, by the way, also provides updates in a Patient Safety Monitor Journal of new developments in regulatory review standards. As in the previous post, I wonder why there is a need for a commercial product to offer such advisories. Don't CMS and The Joint Commission offer plain English advisories and interpretations of their own regulations?

All of which reminds me, while we are at it: Whatever became of the idea of The Joint Commission making its library of best practices open to the public? Why doesn't CMS require it as part of the delegation of authority? After all, the JC acquires this information as part of its surveying function. In that sense, it should be public information, like other government sponsored work.

In good company

Just in case you thought it was just the United States health care system that is facing financial issues, here comes this story about the British system from today's Financial Times: "Reforms of NHS take back seat to cash fears." (Sorry, I can't find a link to the story.) Here's the lede:

Health bosses are far more worried about keeping control of the NHS finances over the coming year than they are about implementing the government's sweeping reforms, warns the NHS confederation, the body that represents health authorities and trusts.

And later in the story:

[S]aid Nigel Edwards . . . "We are already picking up worrying signals from a number of hospitals and primary care trusts about significant money pressures emerging -- and this is before the challenging rigours of next year's tight financial settlement."

After years of sustained growth, the NHS faces a real-terms freeze in spending for the next four years.

. . . The service is being asked to make £15bn to £20bn of efficiency savings by 2014 at the same time as administrative costs are being cut by a third and management costs by 45 per cent.

It is no surprise that these pressures are emerging. The same demographic, technology, and patient care issues exist throughout the developed economies.

What is sadly surprising is that, whether in the US or elsewhere, there seems little coordinated interest in the use of process improvement to redesign work in the health care environment, which would improve quality and safety and also garner financial savings. Why can't the lessons of Spear, Toussaint, and Kaplan take hold?

Wanted: New, unblinking eyes

An op-ed by Joseph Hallinan in the New York Times discusses a form of cognitive error that is worth considering in the health care environment.

Goldovsky’s experiment yielded a key insight into human error: not only had the experts misread the music — they had misread it in the same way. In a subsequent study, Goldovsky’s nephew, Thomas Wolf, discovered that good sight readers report that they do not read music note by note; instead, they rely on their recognition of familiar patterns and on their ability to organize the music into those patterns and dependable cues.

One day, a student of his was practicing a piece by Brahms when [Boris] Goldovsky heard something wrong. He stopped her and told her to fix her mistake. The student looked confused; she said she had played the notes as they were written. Goldovsky looked at the music and, to his surprise, the girl had indeed played the printed notes correctly — but there was an apparent misprint in the music.

At first, the student and the teacher thought this misprint was confined to their edition of the sheet music alone. But further checking revealed that all other editions contained the same incorrect note. Why, wondered Goldovsky, had no one — the composer, the publisher, the proofreader, scores of accomplished pianists — noticed the error? How could so many experts have missed something that was so obvious to a novice?

. . . In short, they don’t read; they infer. Moreover, this trait is not unique to musicians: pattern recognition is a hallmark of expertise in any number of fields; it is what allows experts to do quickly what amateurs do slowly.

Goldovsky’s insight offers a useful metaphor for understanding the crisis on Wall Street: Not only did hedge-fund managers, bankers and others misread the danger involved in many of their investments, but they misread them in the same way.

The author's conclusion: "These types of errors are most likely to be discovered by those who, like Goldovsky’s young student, look at the world with new, unblinking eyes."

In an earlier post, I discussed forms of cognitive bias that have been documented by psychologists and neurologists. Also, you may recall this presentation by Pat Croskerry about intuitive decision-making, and the "cognitive miser function," a tendency to get comfortable with the form of decision-making that you find most used and useful.

The application of these thoughts to process improvement in the health care setting is obvious. It is very difficult to overcome cognitive biases in the delivery of clinical care, especially when the field remains such a cottage industry, in which in which each person is expected to be an artist, relying on his or her creativity, intuition, and experience when taking care of a patient. The resulting lack of standardization -- the high degree of practice variation -- creates an environment that is inimical to process improvement based on scientific methods.

But I wonder if the some of the same types of biases are spilling over into the business aspects of hospital finance, too. In Hallinan's words, "It may be too much to suggest that we let adolescents run Wall Street.... But it wouldn’t hurt to let them check the math." Maybe it is time for some "new, unblinking eyes" among business reporters.

Essays from Ernie's students - 1

Some of you will recall that about a month ago, I gave a guest lecture at Ernst Berndt's course at MIT's Sloan School, entitled "Economics of the Health Care Industries," and gave the students this essay assignment:

First, read this blog post. Then, the question is: What methodology would you propose for the allocation of an annual global payment, to divide it up among primary care doctors, community hospitals, tertiary hospitals, specialist doctors, nursing homes, etc. -- all of whom are involved in caring for a given population of patients? How would you make the transition from the current fee-for-service approach?

Those in the field will grasp the difficulty of this assignment, and it may have been unfair to pose it at the beginning of the semester. But, hey, these are MIT students, and so we should expect a lot. I said I would post the best answers, and I start with this entry. I don't have room for the entire essay, so I will take excerpts. Others will follow in three separate posts.

The first is from Joshua Copp. Feel free to offer your grade and observations, as if you were his professor, in the comment section below. Here is the excerpt:

Examining the costs in order of priority for payment, we would need to start by paying for any materials consumed in the care of the patient. Think of these as the direct costs for treating a patient...

Following direct material costs, a fixed payment will have to be negotiated between physicians groups and care centers. This contract between the physician group and the hospital or nursing home would be very similar in nature to the contract between BCBS-MA and BIDPO...

Base compensation will be a difficult policy to establish, but it is the final cost before considering any efficiency gains or bonus payments. In order to set base salaries, the physician work relative value unit established by Medicare will be the most objective and accurate way to account for training requirements, skill, and time needs. Initially, using a weighted average RVU for each specialty group (cardiologists, nephrologists, orthopedic surgeons, etc) multiplied by the PCP base salary will set that group’s base salary.

The PCP base salary is the compensation level corresponding to an RVU equal to one. For example, if a PCP base salary is $100,000 per year, and the average RVU for nephrologists is 1.2, then a nephrologists’ base salary would be set at $120,000 per year. An inherent assumption for base compensation is that the number of specialists relative to PCP’s will likely decline under the AQC in equilibrium.

Now we must consider how efficiency gains by physicians and quality bonus payments are allocated. First, with efficiency gains, this should tie directly into the direct material costs associated with patient care, and therefore one should be able to tie gains directly to physician groups. For example, if the orthopedic surgeons identify a lower-cost knee implant that saves $500 per implant, then the total savings should be allocated to the orthopedic group. However, to ensure that the least efficient groups are not being over-compensated, target efficiency gains should be normalized across all provider groups.

The next consideration is how to handle quality of care improvements. Specifically, this is targeted at the additional 10% payment available upon meeting certain quality benchmarks for the contract as a whole. First, because the hospital influences the metrics used for bonus payments, the fixed payment contracts established with the care centers should include bonus payouts if the hospital meets certain quality standards. Further, payments to the hospital should be tied to the total AQC bonus payment, ensuring that bonus payments to hospitals only happen when quality benchmarks were met by all, not just the hospital.

In order to tackle the bonus payments to physicians, consider first only those group practices which as a whole delivered on their quality improvement metrics. For those groups, the bonus payment should be divided evenly across each division, and no bonus is paid to groups who, as a whole, did not meet the improvement threshold. The next layer is the individual physician within those groups that improved. For the individual physicians, only those which delivered on their quality levels will be awarded a bonus, evenly split across all physicians who delivered on quality of care. Therefore, an individual’s ability to receive a bonus is directly tied to the ability of the team to gain a bonus, reinforcing the teamwork necessary to develop an efficient system.

The final consideration with bonus payments and incentives is how they fund and support the overall mission of the physician organization and provider network. Thinking specifically in the case of BIDPO, this is an academic institution that has a large teaching contingent. Therefore, in order to support their mission of research and instruction, all bonus payments should be ‘taxed’ at an appropriate rate each year before any distributions are made. For example, if BIDPO received $100 million in care quality bonus payments, then 30% of this is automatically set aside to fund research and training, before any consideration is given to group payouts. This tax would be used to fund research, training and continued education across the institution.

The final consideration is how to transition from the fee-for-service model to the global payment system. Two main points need to be addressed to ensure an effective transition. First, negotiations need to begin immediately with all care centers to accurately gauge the annual effective rental expense for each center, based on the mix of procedures and usage. Second, communication with specialist physicians must begin immediately. There will likely be attrition from the specialist groups as the transition is made, and as such retaining the best trained physicians will be imperative to providing the highest quality care. The key for retaining the top specialists will be to explicitly demonstrate how they will not suffer in compensation, research opportunities, or in their ability to care for the patient.

Essays from Ernie's students - 2

Here is the second of the selected essay's from Ernst Berndt's Sloan School class at MIT. David Berlin is the author. Please submit your observations and grade in the comment section. There are three other essays.

The most complex question raised by the AQC is how to allocate the global payment among various care providers encountered by a patient. Evaluation of this question requires analysis of methods for data aggregation, a structure for determining the relative value of various services provided to a particular patient and a plan for implementing the change from fee-for service reimbursement to global payments.

The logistics for managing care under an AQC arrangement are significant. Providers are responsible for orchestrating the spectrum of care received by patients, and concurrently optimizing both outcomes and costs. The initial hurdle in achieving these goals is to provide reliable and consistent data to the primary care physician decision makers. The AQC relies on physicians adjusting to new incentives that incorporate costs. Therefore it is essential that physicians who choose where to refer patients are fully informed as to the costs of various referral options. If physicians are blinded from this cost data they cannot be expected to make rational decisions regarding the best locations to refer patients. Secondly, these physicians should be provided aggregated outcome data for referral sites. By pairing aggregate outcomes with the costs of services, physicians will be able to determine where patients will receive the greatest value. The data should be aggregated through the insurance provider, as they are a source of continuity between patients and therefore the only party that is privy to the totality of a particular patient’s care and cost tally. By aggregating this data through the insurance provider and distributing it to primary-care physicians, these physicians will be empowered to make rational decisions on behalf of their patients.

Determining the relative reimbursement for various services is also a major issue within the AQC model. Under the traditional fee-for-service model each service is independently reimbursed at pre-defined rates. However under the AQC model, a significant portion of potential revenue is realized through outcomes based bonuses. Were this bonus to be distributed proportional to a physician’s share of reimbursement for a given patient, the system would again incentivize the provision of high-cost services. Therefore providers should find a mechanism of distribution that links payment to the value of services received by a particular patient, as measured through outcomes. Within the physician practice network various specialties should negotiate their payment rates with the practice administration. This provides internal market forces that allow the individual practice network to determine the relative value of various services. Furthermore, since the primary-care physician is tasked with orchestrating the spectrum of care, they should be entitled to a more significant share of performance based payment than specialty providers.

The transition from fee-for-service to a global payment system creates significant changes in provider incentives, and therefore should be executed in a gradual manner to allow an appropriate market reaction. Initially it would be most reasonable to keep reimbursement rates at existing levels, with efficiencies being extracted through changes in referral volume. Over time in-network physician specialists should be required to negotiate with their practice administration to determine reimbursement rates. Should those services ultimately be priced at too high a level relative to the value provided to patients, one would expect the volume of referred patients to diminish accordingly as a result of changing referral patterns. If provided with adequate information regarding utilization and outcomes, practice administrators should recognize which physicians provide improved value to patients, and can subsequently allocate an increased share of overall reimbursement to these physicians. By leveraging these market forces, a system of continual improvement will be created with incentives for investment in both improved outcomes and efficiencies.

The objective of modifying physician incentives is both challenging and important for creating a sustainable healthcare system. The recent AQC contract between BIDPO and BCBS-MA provides an encouraging framework for modifying incentives to align with the overall value provided to patients. While the theoretical structure of this contract should provide both improved outcomes and restrained costs, the results remain to be seen. Among the challenges facing the AQC are questions regarding implementation, allocation of global payments, and uncertainty regarding the true impact of these changes on physician behaviors.

Essays from Ernie's students - 3

Here's the third essay from Ernst Berndt's Sloan School class at MIT. This one is by Anna Capetanakis. Please offer your observations and grade in the comments section. There are three selected essays.

Implementing such a large and different payment system will be a challenge. Multiple ideas will have to be tested on a small scale to determine the best way to divide the funds. Below are a few ideas on how to approach this issue.

One main question is how to divide the patient budget across primary doctors, hospitals, specialists, and so on. I believe the answer entails both a technological and human aspect. The technological aspect is to analyze past data to determine the historical breakdown of treatment costs per ailment. Basing it off of data will make it difficult for the various stakeholders to refute. Once the breakdown is calculated, experts from more efficient systems (for example from the European countries) would assess where cuts could be made. These new adjusted ratios would act as general guidelines for how funds per patient should be divided amongst the various caretakers. It will be critical to make the process iterative so that as costs change, the allocation of funds shift accordingly.

Despite these general guidelines, it will be important that care be determined on a per-patient basis. To do this, the hospital organization should create a group of specialist physicians who have been trained on how to optimize the care of patients within budget constraints. These doctors will act like consultants to settle dispute, help primary care physicians adapt and make decisions, and decrease the risk associated with physicians making a decision.

In addition to this team of physician experts, it will also be critical to give all primary care physicians appropriate training on the new system. Which procedures are critical and which can be avoided? How do you communicate to your patient that his requested procedure is unnecessary? How do you solve conflicts among your patients’ caretakers? These doctors will need a support network and training to address these and other questions. These doctors have become accustomed to ordering tests rather than decide based on their intuition, so they will need support to make decisions. The group of experts will be invaluable to break the primary care physicians’ habits, increase their risk tolerance, and help them share some of the risk that comes with determining a patient’s critical procedures.

Another revolutionary but potentially very rewarding solution would be to completely revamp the hospital organization. Quite often we find in the business world that companies will piece together arcane IT systems rather than create one new, overarching system, resulting in a more inefficient, cumbersome, and expensive system than if the company had just started from scratch. With respect to hospitals, the hospital organization has evolved to support the fee-for-service system. Why not completely overhaul the system? Create a central database to track all patients. Change the relationships between departments in order to increase communication. For example, for common ailments like a heart attack, have a team of cardiac team (a radiologist, a cardiologist, etc) work together on the patient – essentially realign departments according to the payment scheme. It sounds farfetched, but why not try it? There would certainly be huge organizational resistance, but as we see in business, organizational change can be painful but it can pay off too.

Essays from Ernie's students - 4

Here's the last of the four chosen essays from Ernst Berndt's MIT class at the Sloan School. As above, please offer your observations and suggest a grade in the comments below. This one was written by Ramesh Chandra. I include the entire essay, as it was the only one to include an alternative payment and patient care mechanism. There are three other selected essays.

Do AQCs solve the U.S. HealthCare System’s Woes?

1 Introduction

It is widely accepted that the U.S. health-care system is highly inefficient, with estimates of up to 30% inefficiency. The important causes of this inefficiency are considered to be: (i) fee-for-service payment methods that result in over prescription of care by doctors even when there is no significant benefit [6] (ii) lack of coordination in care delivered to the same patient by different doctors (iii) overuse of care by patients due to moral hazard, driven by the perception that more care is better care, and (iv) relatively little attention to prevention and wellness programs compared to treatment programs (also a fallout of the fee-for-service payment policies.)

One solution suggested to address these issues is to have care providers have more “skin in the game” by using global payment schemes. The idea is to allocate a fixed annual budget per patient and have the care provider manage it to deliver the care required by the patient, with bonuses awarded to the provider if it efficiently manages the budget.

In this essay, we study a specific type of global payment scheme designed by the BCBS of MA, called the Alternative Quality Contract (AQC). We look at the AQC model’s goals and analyze it to understand its limitations. We also briefly look at an alternate design, which we believe works better than the AQC in practice.

2 Overview of the AQC model

The salient features of an AQC are as follows:

1. The contract is between BCBS and provider organizations with primary care physicians (eg: HMOs, POS) for a period of five years.

2. Each patient that the provider organization provides primary care for, is allocated an annual budget. All health care expenses for the patient come from this annual budget, even if care is provided by a different organization. If the expenses are lower than the budget, the provider organization gets to keep the savings; if the expenses exceed the budget, the provider is liable for the extra cost.

3. To incentivize providers to take care of their patient’s health (and not optimize for the short term by denying care), they are paid an additional bonus of up to 10% if they hit certain health quality measures for their patients.

4. The first year’s budget is determined by the patient’s prior year’s medical expenses. The rate of increase of the budget is also negotiated based on trends.

5. Patients are unaware of whether their PCPs are part of an AQC.

The goal of the AQC is to contain the ballooning costs of health care, and it plans to achieve that by making providers more “accountable” for the costs of their primary care patients. At a high-level, it appears that the AQC’s design is aligned with its goals—Ideally, the annual budgets would motivate physicians to reduce spending on unnecessary care, while the performance bonuses would motivate them to keep their patients healthy, thereby not skimping on necessary costs.

Accountable Care Organizations (ACO) are similar in concept to the AQC, and are designed for Medicare; the main difference appears to be that the provider is not liable if expenses exceed the budget, but receive rewards for reducing costs and meeting quality improvement markers.

3 Will the AQC model work in practice?

To understand the AQC model better, let us consider a simple thought experiment. Imagine that the entire healthcare system consists of Reliable Insurance Corp. (RI) and Expert Medical Center (EMC). Let us further assume that the only illness that patients acquire is backache. EMC operates in two states, A and B, with one primary care physician and five orthopedic surgeons per state (ratio consistent with current ratios of PCPs vs specialists). Assume that 1000 patients get backache each year in each state, out of which 100 need surgery, 800 can be cured in 2 weeks by getting ergonomic chairs, and the remaining 100 are the “indeterminate” group—they can either be operated on or can be cured in 2 months by getting ergonomic chairs. A new chair costs $100, whereas back surgery costs $10K, of which $5K goes to the surgeon and $5K to EMC.

Now, to keep the example simple, assume that all orthopedic surgeons in state A recommend chairs for the patients in the indeterminate group, whereas surgeons in state B recommend surgery. Correspondingly, EMC has over the years built enough facilities to accommodate 100 surgeries in state A and 200 surgeries in state B. Thus, the total annual healthcare costs for the entire system are $3.17M, out of which $990K could be saved with no change in outcome.
Let us say RI wants to realize these savings by entering into an AQC with EMC. Would it succeed? Let us look at it from each party’s perspective. (here we assume that all parties are rational and that earned income is the motivating factor):

1. Will EMC be motivated to enter into a contract? If so, at what annual budget? Since EMC already built the facilities needed for doing 300 surgeries per year, it cannot forgo the $500K it gets for the 100 surgeries in the indeterminate group. So, it needs the annual budget to be at least $2.18M + $500K = $2.68M

2. Will the orthopedic surgeons agree to enter into the contract? If so, at what budget? The orthopedic surgeons in state B lose half their income if surgery is not done on the indeterminate patients. So, they would resist the AQC, unless their $500K of salaries is incorporated into the budget and EMC assures them that their income will not be adversely affected.

3. Will the primary care physicians want to enter into the contract? In this example, PCPs won’t see any difference to their income levels and so would be fine entering the contract. However, they may ask for additional perks to “sweeten” the deal.

4. Will RI be able to realize these savings by entering into an AQC with EMC? From the above analysis, we see that in practice, RI will not be able to realize the savings. In fact, it may cost RI more, due to the administrative overheads, and because each of the other parties may expect perks for the inconvenience of getting involved in the contract.

The above example is arguably simple, but gives a flavor of the challenges involved in implementing AQC. We believe that the points made above would hold in real world scenarios. Consider the following examples:

• It is widely agreed that there is 30% waste in the system. However, the current AQC contracts that BCBS entered into start above the current spending levels. This seems to be tacit acknowledgement that this waste cannot be recovered.

• In addition, it appears that BCBS “has offered physician groups and hospitals sky-high reimbursement rates to persuade them to sign up for a new type of health care plan," which contributed to its loss in 2009.

• Some ACO providers in Medicare “want to avoid being financially responsible for patients who go outside for care”, they want to be able to “pick and choose” patients, or have asked “to limit quality measures” [2]. All of these point to providers trying hard to protect their income sources.

The above trends validate our simple thought experiment. The take-away point is that one man’s expense is another man’s income. In other words, the waste in the health care system is income to a significant portion of the providers, and it is natural that they will only enter into contracts (or try to mold the contracts so) that their income is not jeopardized. This would run against the grain of efforts to reduce waste in the system.

There are two other issues with the AQC, which we briefly discuss below:

1. The AQC, as it is currently structured, is more of a risk-transfer mechanism from the insurance provider to the care providers. This makes the provider organizations more like insurance companies. This means that they get more complicated and they need finance/insurance personnel who can negotiate AQC contracts, purchase reinsurance, manage budgets etc., This increases the already high administrative costs in hospitals. More importantly, this further detracts hospitals and doctors from their primary job—practicing good medicine.

2. Another key issue with the AQC is the glaring lack of any role for the patient in it. The fact that the AQC participation of PCPs is hidden from patients can make them distrustful of their PCPs and the AQC model, and lead to perceptions that care would be withheld from them.

The above fundamental issues can jeopardize the success of AQC in achieving its goals, and instead result in a more expensive and more complex system, with more dissatisfaction and distrust among the different parties. Given these limitations of AQC, we believe it would have a difficult time succeeding in its current form, regardless of the allocation of resources among care providers.

4 Is there an alternative?

The AQC suffers from poor system design (as does the rest of the healthcare system), as it does not account for human behavior. Given that the current health care system is a supply-driven market, it is rather difficult to negotiate with the suppliers to agree to restrict supply, unless they are promised no reduction in profits. This fundamental conflict works against the AQC/ACO model’s goal to reduce waste.

So, what is the alternative? We look to the end user/patient for a solution — one whom the AQC model ignores. We feel that the end user is likely the only party with enough wherewithal to provide the required counterbalance to excessive supply — after all, the entire system exists for the end user. But for that to happen, we need to have informed patients who have a basic understanding of healthy living, understand how to navigate the health care system, and have the confidence to not blindly go along with whatever their doctor recommends. Let’s go through the above thought experiment again with informed patients in the mix.

Imagine that our informed patients have full knowledge of all the past procedures done by the orthopedists. It would be apparent to them that the outcomes of treatments by all the orthopedists is the same, but that orthopedists in state A do fewer percentage of surgeries than those in state B. Also, our knowledgeable patients understand that surgery can have long-term ill-effects. So, when a patient is recommended surgery by a orthopedist from state B, she would solicit a second opinion from an orthopedist from state A. If the opinion differs, she may (i) ask her original orthopedist for the reason for difference in opinion, and/or (ii) use an ergonomic chair for 2 months to see whether her condition improves. Once enough number of patients realize that they can be cured without surgery, the orthopedists in state B would be “pressured by the market and the cause of science” to revise their treatment procedure, to avoid falling out of favor of their customers (or worse to avoid getting sued). This leads to much better outcome than RI trying to negotiate an AQC with EMC. Note that the care providers are still paid on a fee-for-service basis.

So, how can RI get its users to be more informed? Here’s one potential design: RI can encourage the formation of a health advisor organization, whose sole charter is to guide consumers through the health care process and keep them healthy. RI can compensate the health advisor with a minimal fixed fee per user and tie the majority of compensation to the health care savings of its users (with compensation spread over several years and weighted by the health of its users to avoid short term optimizations). A health advisor itself does not perform any procedure and does not offer medical advice. Its users are not bound to take procedural advice it offers—the only leverage it has with its users is mutual trust. Also, to avoid conflict of interest, it cannot obtain revenue from any other sources. Given these constraints, the health advisor can only increase its revenue by (i) chasing down major waste in the system (ii) finding ways to mitigate this waste while maintaining user health (or even better, improving it, as in the case of avoided surgeries) (iii) gaining user trust, and (iv) convincing them to do things that are good for their health, which also happen to reduce waste. We can imagine several ways in which the health advisor organization can do this (collect effectiveness metrics on healthcare providers; gather scientific studies on effectiveness of various procedures; suggest users take second opinions; run ads to convince customers to practice prevention; build health IT systems to take care of customers—reminders for pills, for appointments, preventive care etc.,) If we reflect on the the above thought experiment again, it is easy to see how these steps of a health advisor would map to the actions of informed patients.

If the guidance of health advisors convinces customers to reduce consumption of health care services, that acts as a market signal to providers to throttle expansion of unnecessary services, achieving the desired result of reducing waste.

5 Concluding remarks

In this essay we analyzed AQC, a global payments proposal to contain health care costs, and show that its design suffers from a fundamental challenge — convincing suppliers in a supply-driven market to reduce their revenues. We outlined an alternate consumer-centric mechanism that instead focuses on educating and guiding consumers on how to be healthy, while at the same time reducing consumption of unnecessary medical care, thereby reducing demand. We believe that a consumer-driven approach provides the right counterbalance to the supply glut. The limited size of this essay does not permit a more detailed discussion of this approach, and the rationale behind the arguments against current approaches; however, we end with a
note on the wider applicability of the consumer-driven approach, by pointing out how it applies to the Indian healthcare scenario. The health care system in India is also increasingly suffering from a supply-driven approach. Modern hospitals are outfitted with expensive equipment, and doctors are prone to prescribing procedures to put this equipment to use. Furthermore, the fee-for-service approach leads to more focus on treatment than on prevention. Patients are typically timid, rarely question their doctor’s analyses, and do not generally seek second opinion. All this, even though most patients pay for their medical expenses out of their own pocket. We believe that a health advisor organization, as proposed above, would also work well in that scenario.

JetBlue's Dave in the air

Back in April, 2008, I wrote about JetBlue's use of homesourcing:

The idea is simple and elegant. For some staff functions, those relying mainly on computers and telephone, why not allow people to work from home and avoid the mess of commuting? Also, people who are otherwise tied to home for physical or family reasons can be active members of the workforce and get better jobs if they are permitted to work from home.

We tried a variant of this at our hospital, and while it could not be expanded to the full extent of the reservations assistants at Jet Blue, the concept showed some promise for the health care sector.

Anyway, because of this and other things, I had always admired Dave Barger, JetBlue's President and CEO. What a pleasure, therefore, to run into him on a flight earlier today and have a chance to extend my appreciation in person.

Based on my conversations with the staff, he is very well regarded as a CEO, displaying a real concern and affection for the people who work in all capacities in the firm, and joining in to help out as a flight progresses and on the ground. You see him here with Kiwi flight attendant James Harbour.

Update from Cape Verde

You may recall a post from November, in which I described a mission from BIDMC to Cape Verde. Well, I had the story a bit backwards. I thought it was initiated by the doctor, but the impetus actually came from one of our interpreters. In any event, these wonderful people together did good for the community. It is a lovely story.

Here's a video update. If you can't see the video, click here.

Time for the wisdom of the crowd

On the post below, "nonlocal MD," a regular contributor, asks:

I would next like to see a series on how you think all this could be done better, perhaps drawing on your international experiences.

And Barry Carol says:

As I understand it, the German population is generally satisfied with their healthcare and health insurance system. However, people can opt out and access more comprehensive private insurance if they want to and can afford to. About 10% of the population chooses the private system. One way or another, the wealthy and upper middle class will always be able to trade up creating, in effect, a two tier system. Personally, I don’t have any problem with that as long as what’s available to the bulk of the population is widely perceived as “good enough.”

Here is my reply, to you and to her:

Dear nonlocal,

It is not a question of doing better: It is the political imperative at work. My purpose in writing about all this was to describe the natural sequence of events.

As Barry suggests, people are generally content with this kind of system. The broad base of the population, the voters, gets security and a plan that is "good enough." The wealthy buy the "upper tier" plan.

It's the same as coach and first class on airplanes; Ford and Lexus in cars; McDonald's and luxury restaurants.

For years, we have rationed primary care in the US based on income. Now, like Europe, it will be reversed: We will ration high-end care based on income.

An underlying problem remains: There is little about the new order here in the US nor the European system that has dealt with the need to improve quality, safety, transparency, and promote continuous process improvement. And so demographic cost pressures will continue to build on both sides of the Atlantic. Governments and other payers will try to use the hammer of rates and regulatory changes to accomplish the kind of process improvement that can truly create better value for the population. That will fail. Those changes should come from the medical profession, but that profession has been recalcitrant and engaged in denial. We have seen that over and over: "The data are wrong" or "Our patients are sicker."

Changes are most likely to come as a result of strong advocacy from patients who are more and more empowered because of the internet and social media. In health care, the future is Egypt -- if and when the patient advocacy community gets its act together.

Places like Institute for Healthcare Improvement and the Joint Commission will finally succeed at their jobs when they facilitate the engagement of those thousands of people throughout the country. But you can not "own" those individuals or prescribe the approach that should be taken: You have to cede control of the agenda to let the wisdom of the crowd come through.

Paying more for the amenities you may never need

Let's continue our discussion about the future of employer-based insurance products in the US. We have talked about a general shift of employer-based plans to insurance exchanges and Medicaid; about a shift of retiree health benefits away from employer-based plans; and a move to reallocate risk away from insurance companies and towards doctors and consumers. What's left?

Well, as the commercial insurance pool shrinks and as subsidies for government-chartered or government-paid insurance products diminish, the norm for the general public will be a "dumbed down," lowest common denominator kind of insurance. With accountable care organizations and a move to bundled or capitated payments, limited networks will come into play. Deductibles and co-pays will rise to discourage people from using health care services. Likewise, if you choose to go out of network for your care, you will see higher personal charges.

But the potential for market segmentation never disappears. What will you do if you are an employer who wants to retain an insurance plan to attract workers in competitive fields? The answer may be to provide your staff with a "privileged access product," something that we have seen in Europe. (There, government-sponsored insurance can leave out a lot of items that are routine in the US, and rationing by congestion of high-end services is more commonplace.) The idea of this kind of privileged access product is to address the insecurities that people of means may have about the new environment. They want to assure themselves rapid access to the services they want, including the latest technological advances. They also want extra amenities like private rooms and other concierge type services.

It is a recognized phenomenon that people, especially people of means, are willing to pay more for amenities they may never need. So, look for such high-end specialized product offerings, especially in companies where well-paid workers in demand by competing firms represent a significant share of the workforce.

So, when you put this all together, we will likely see a move towards a more egalitarian (government provided or government-influenced) offering of insurance products for the majority of the workforce, combined with a less egalitarian offering of premium services for those with higher incomes. As I suggested years ago and reiterated last year, expect a convergence of the US and European models:

I predict . . . that the systems will start to look more and more alike over time. Pressure in the US for a more nationally-determined approach. Pressure in Europe for more of a private market approach. It shouldn't surprise us to see this convergence. After all, the countries are dealing with the same organisms, both biologically and politically.

Latke vs. Hamentashen, The Great Debate

There's serious work that goes on at MIT. And then, thankfully, there is not.

A debate was held to determine which is superior among two traditional Jewish foods: The latke (a potato pancake served during Hanukah) or the hamentashen (a prune-, poppy seed-, or apricot-filled triangular pastry).

(Wow, you should have seen what the Blogger spell-check suggested for some of the words in that sentence! Latte, larked, Hank, lamentation, fomentation, emendation, among others.)

Back to the debate. Six of the world's greatest scientists joined Rabbi Michelle Fisher, executive director of the MIT Hillel, to offer their "proofs" that their assigned food was superior to the other. It was heartening to see the degree to which academic credentials and principles of scientific discovery were applied to this high purpose. One participant was Robert Weinberg (Course 7*), a Founding Member of the Whitehead Institute, and a pioneer in cancer research most widely known for his discoveries of the first human oncogene — a gene that causes normal cells to form tumors — and the first tumor suppressor gene. "Trust me, I am an expert," he noted. When facts faltered, character assassination was brought to bear. Said Weinberg of the other side: "Remember, in debates like this your opponents' motives are ultimately vastly more important than the arguments they make."

The other participants on Team Latke were Sanjay Sarma (Course 2) and Allan Adams (8). Team Hamentashen comprised Steve Wasserman (20), Shaoul Ezekial (16), and M. Fatih Yaniak (20).

A secret ballot was held at the end. Not a paper ballot. Audience members promised to bend their heads down and look at the floor as Rabbi Fisher asked people to yell, first, if they liked latkes, and, then, if they liked hamentashen. You can see the result in the video below.

A reception followed the debate, with samples of both treats.

If you cannot see the video, click here.



--
* Unlike other colleges, MIT departments are called "Courses." Courses are called "classes." All Courses have an English name, of course, but are usually known by their number. To make it trickier, the designations have changed over the decades.

Power -- er no, risk -- to the people!

What will be the biggest trend in the health insurance business over the coming years? A tendency to shift risk from the insurance companies to the public.

How fitting for a sector that was created to manage risk to do this.

Why is it happening? Even before the recent health care legislation in the US, insurance companies were looking for a way to shift the rising cost of medical care to others.

This trend will grow because of provisions in the new law for benefit mandates, floors on medical loss ratios, guaranteed issue, and medical underwriting represent a challenge for payer balance sheets. Insurers will want to shift those risks away.

And -- as we have discussed -- so will employers, who will want to shift their insurance obligation for current employees and retirees to others.

Who's left? Ironically, it is the participants in the health care marketplace who are most unsuited to bear risk -- individual doctors and consumers. This will come in the form of global payments, higher deductibles, and higher co-pays.

These will be portrayed as means to greater efficiency and consumer-directed health care. And perhaps they are. But they are also a veneer that hides the fact that a large portion of the actuarial risk of care will be shifted to individuals. The insurance industry was designed with reserve requirements and a capital structure that acted as a shock absorber for the vicissitudes of risk. Consumers and doctors do not have that back-up.

Alan MacDonald, head of the MA Business Roundtable, makes this shift clear in a discussion about Governor Patrick's proposed legislation:

Up until now, where the insurer in the health plans accepts the risk of making sure the payment is there to cover the expenses. When we have a global payment, a payment is made to the organization, and that accountable care organization is responsible for the care. They've received the payment already, and so the risk is that more care is required than is covered by the global payment, so they would have to have a reserve to take care of that. (Dig Boston, Volume 13, Issue 8). Emphasis added.

There has been no talk of reducing the capital requirements of insurance companies in return for this shift in obligation to individuals. Are they going to be permitted to maintain large capital reserves, on which they earn money, while their liabilities diminish? Who will ensure that the savings that insurers gain from these changes will be passed through in lower rates to consumers?

On a lighter note, comedian Brian Donnelly is quoted in the same newspaper -- perhaps displaying greater insight that he knows:

I've been looking at the new health care proposal and I'm not sure what's going on. Most of it feels like that part in the "Star-Spangled Banner" where no one knows what it is and you sort of mumble through. I feel like there could be magic involved.

Spreading knowledge that matters

Back in January, I wrote about a great example of a locally produced, informative and engaging newsletter produced by Samantha Riley, Head of the Quality Observatory at NHS South East Coast, and her colleagues. The latest edition has just been published.

There is a nice article by Roger Halliday about self care, with the following introduction:

When people take an active role in managing their health, this tends to lead to them having better health, better experience of care and using fewer healthcare services. This finding seems intuitive and indeed is backed up by a significant body of research. The challenge is how to make this happen. If you are struggling with this challenge, this product may be something to help.

This free to use product gives local commissioners the likely demand for, costs, cost savings and patient benefits of self care education, tailored for their area. It makes the business case for you and indicates the best value spend on this theme given local circumstances. It uses the latest national and international research combined with local data, though you can change the assumptions to explore options.

Again, I offer it as an example of the good work that can come out of a dedicated cadre of people seeking to improve the quality of care and the work environment at a hospital.

Shifting retiree health benefits

In a post below, I discuss the possibility that the new health care law many entice many employers to drop their company-provided health insurance plans and send their staff over to one of the new health insurance exchanges or Medicaid. Such a strategy, I noted, depends on a firm reaching a conclusion that having company-sponsored health insurance is not important to attract and retain workers.

But there is a group of people who are served by company-provided insurance whose competitive employment choices are no longer of any concern to the firm: Retirees.

Post-employment health benefits are an expensive drag for many companies. Even if the full provision of health insurance ends upon Medicare eligibility, there is the cost of covering retirees during an intervening period. This could easily be 10 years or more, since people can often retire in their mid-50s.

Hewitt Associates seems to be on top of this trend. The company conducted a survey last year of 245 U.S. companies that offer medical benefits to 1.3 million retirees and their families and "learned that six out of ten employers intend to evaluate their long-term retiree medical benefits strategy in the near future, and nearly half of these companies have already begun the evaluation process."

Look at this finding:

While the second option seems more drastic, the first option is intriguing because it still allows a company to gain financial stability with regard to the retiree health care costs. You set an annual amount that you are prepared to spend per person and let the former employees go shopping. Nothing says you have to increase that amount each year, or, if you do increase it, nothing says that you have to do so at the rate of inflation of health care costs. This could remove a huge liability from the balance sheet of many corporations and transfer the risk of future cost increases to the former employees.

A counterbalance focused on quality

Ascension Health, the largest chain of Catholic hospitals, has joined forces with Oak Hill Capital Partners, a private equity firm, "to form Ascension Health Care Network (AHCN), a joint venture that will provide an alternative funding source for the acquisition of Catholic hospitals and other healthcare provider entities. AHCN will offer these entities access to financial, operational and clinical resources."

Ascension Health is renowned for its quality and safety programs and also its commitment to the efficient and profitable operation of the hospitals in its non-profit network. Further, Ascension operates under a distributed leadership model, designed to ensure a strong local presence in all communities that are served by the national system.

The announcement is short on details as to how the business arrangement between a non-profit chain and a private equity firm will work. But this move seems to be a direct challenge to other private equity firms with little or no hospital experience. Ascension seems to be saying to hospitals in distress: "Before you sell out to someone with no track record and no demonstrated commitment to the long run, call us."

Gentlemen, start your engines . . . .

Come on in any time!

Winchester Hospital, a 229-bed facility just north of Boston, has announced that it has eliminated defined visiting hours, effective immediately. With some exceptions -- operating rooms and for clinical reasons including infection concerns for the patient or visitor, safety, clinical care and interventions, or if the patient needs rest -- people visiting patients can do so whenever they wish. "We recognize the value of emotional support during the healing process," said Kathy Schuler, vice president of patient care services and chief nursing officer at Winchester Hospital. "We hope this new policy will benefit all patients."

This is good stuff and a nice contrast to the story below. It would be interesting to know whether the initiative was driven by the staff or whether it came out of consultation with a formal patient advisory council. At BIDMC, it was the latter, as described here, after our ICU Patient and Family Advisory Council suggested to the MDs and RNs that it would help accommodate family members who work late and allow loved ones to visit at their convenience, rather than at ours.

No way to run a hospital

A friend reports on her recent experience in a New York City hospital, where her husband was undergoing a hernia repair.

They were about as un-user friendly as one could be. They called 5 times to tell him to come in between yesterday and today, all the time seeming to change the information. They gave him the wrong pick-up info to give me, so when I came up the K elevators to an empty reception area, I only figured it out by barging into the patient bay area where there was a lone nurse at the station. She told me to go back down and come up the A elevators. When I did, I couldn't find the recovery area (no signs) and had to ask somebody at the blood bank window, who pointed me to the right doors -- which were locked. You couldn't open them by pushing on the door release button and nobody answered the intercom.

So I called Sam on his cell phone, and he gave me to a nurse who couldn't seem to understand the problem: "The door is locked, can you please have some one let us in?" (There was another woman there trying to pick someone up by then.) "We're very busy right now." So we got in because some staff person opened the door with a card key and let us in, too. (He probably shouldn't have: How did he know who we were?). I felt badly for the other woman because she was old with a cane. The nurses couldn't seem to focus on talking to her, whereas they were suddenly wanting to help me.

And the elevators barely work and were crowded as hell. If we had put Sam in a wheelchair like they suggested, I think we would still be there. Of course he was walking slowly, having just had his abdomen repaired, so I basically had to body-check the elevator doors (and they were brutal) to get him in.

ObamaCare Shift

A colleague pointed this out to me recently, and I think he has it right: While more people will have health insurance as a result of the federal health care reform act, a side effect will be to reduce the number of people insured through the employer-based insurance plans that have characterized the US health care system. These people will either be insured as individuals through the state exchanges that are to be established or, if eligible, through Medicaid. There are three aspects of economic hydraulics that are likely to lead to this result.

First, the penalty to be assessed against employers for not offering coverage -- $2000 per year -- is dramatically below the cost of providing insurance. If you are an employer and can save, say, $5,000 by paying $2,000, why wouldn’t you do that? And the $2000 is not even indexed to inflation, while the annual charge for an employer-sponsored plan is likely to go up over time. Hence the differential will grow every year.

In the past, the provision of a health care benefit was viewed as competitive factor in hiring and retaining a firm's work force. But for the vast majority of businesses, that may be a less important factor than saving a few thousand dollars per employee and being able to offer a portion of those savings in higher wages and/or improving the profitability of the firm. Sure, some businesses might still want to attract workers by having their own semi-customized insurance benefit, but the power of that is likely to diminish over time.

A second factor is that the so-called “Cadillac” tax will make employer-sponsored health care even more expensive if you have a plan with generous benefits. Health coverage in excess of $10,200 for individual plans and $27,500 for family plans will be hit with a 40 percent excise tax on the amount in excess of the floor. The tax is indexed for inflation plus 1 percent.

Finally, to help avoid the excise tax, employers are going to “dumb down” plan designs by raising deductibles and co-pays. As they do so, the substantive difference between their own plans and the ones that will be offered through state exchanges or Medicaid will diminish. Even if you have a residual concern that your workers may want an employer-based plan, their desire might be diminished as you make your plan less attractive, so you lose little in competitiveness by referring them to the non-employer based plans.

There are those who believe that there was an ideological basis for this construct, that the Administration and a majority of Congress wanted people to move away from employer-based health insurance as part of an eventual movement to a federally chartered single-payer regime. Others say that it is just a natural extension of a bill that created important protections -- benefit mandates, a floor for medical loss ratios, guaranteed issue, restrictions on medical underwriting -- all of which act to increase the cost of insurance products.

Whatever the reason, we should expect that the world of employer-based health insurance that was created in the 1940s in the United States will rather rapidly move away from that system to one in which government-controlled insurance exchanges and direct government pay (Medicare and Medicaid) will rule. On the latter point, I have have now heard a couple of people estimate that the percentage of the US population covered by government payers can be expected to rise from the current mid-30s% to about 50% over the coming five years or so, abetted by the factors mentioned above but also by expanded income eligibility for Medicaid.