In the recent Bloomberg Businessweek magazine the above headline caught my attention. Reading the article highlighted the problems the healthcare industry is faced with in the coming years. In this article it shared the pricing disparity for services performed at a Sutter facility vs. other facilities in the area. The example given was a simple MRI. At the Sutter California Pacific Medical Center an MRI brain scan had a charge of $3,484 while the same type of brain scan performed at Seton Medical Center had a charge of $1,150. Why such a huge difference in charges? As the article shares, Sutter Health, a non-profit healthcare organization owns nearly a third of the medical-care market in the region going from San Francisco to Sacramento. Charges typically are 40 to 70 percent more than competing hospitals.
If you were working on a network agreement or trying to negotiate with their facilities you would be trying to negotiate from a starting point that is nearly double of their competitors. Typical negotiation is working off a billed charge (that is already higher than surrounding markets) and trying to work down from this. A losing proposition.
We must look at a rational payment approach that looks at payments in a fully transparent fashion. This includes looking at what the facilities true costs are to deliver care and do a comparison of like facilities and what costs their structures look like. From this a rational margin is applied to insure profitability. If we are to continue to pay or try to negotiate from a “billed charge” basis, we are headed for an unsustainable payment environment. This article highlights the environment we are dealing with. Providers must make money, but employers must be able to afford it. This is only achieved when we bring a fully transparent and rational payment approach to the market. Read the full article.
Last Thursday, NCN co-sponsored a luncheon featuring Dr. Ron Anderson, who heads the Parkland Hospital System in Dallas and John Goodman, PhD, President and CEO of the National Center for Policy Analysis. The discussion centered on the recently passed health reform law (PPACA) and how this legislation will impact the nation’s health care delivery system.
It was interesting to hear how similar their take was on where healthcare is headed. In particular both believe that:
- Emergency room traffic will increase;
- Access to care for seniors and the disabled will be so impaired, that they are at risk of becoming like Medicaid enrollees who are forced to seek care at community health centers and safety-net hospitals; and
- Unparalleled/unprecedented discretionary power is being given to one federal agency (Health and Human Services) to make decisions that will affect everyone.
NCN will continue to focus on ways to develop a rational and transparent payment system allowing affordability and sustainability for all.
Watch the embedded video above; it'll be worth your time. Will you comment and let me know your thoughts?
In the July issue of Managed Healthcare Executive there was an interview with Karen Davis, President of the Commonwealth Fund, a private foundation based in New York that supports research on improvements in healthcare. In this interview I was struck by her comments relating to payment innovations. She is quoted in this article “But the bigger issue is whether the public and private sector can work together on payment…Some states may be willing to use their convening skills to bring different parties together to identify a payment model that is more rational instead of having so many different ways of paying. It’s consuming so much in administrative costs.”
I wholeheartedly agree with her assessment. With the recent passage of PPACA all eyes are focused on providing access to 32 million uninsured/underinsured people. However, there has been no attention to developing a rational payment approach to support this added burden on states and individual employers. For years, we have operated on a payment methodology created by Medicare which today is broken, or a system based on contracts based on discounts in return for volume that is no longer advantageous to employers. What do we do? Our current system is not sustainable. Anyone in the business realizes this and we need to change this quickly.
A rational payment process is needed and will be central to the success of a sustainable healthcare system. Since 2001 we have worked on ways to bring rationality to an irrational payment world. The spotlight of the sustainability of healthcare will be squarely on this word “rational reimbursement.”
Recently the President convened a group of insurance executives and business owners to the White House to discuss the current state of healthcare and to reinforce his desire to provide healthcare to more Americans. In a recent post on June 22
nd by Inside Health Reform stated:
"All sides in Monday's meeting involving President Barack Obama, health insurance executives and state regulators agreed that more needs to be done to confront rising health care costs, including addressing pharmaceutical costs, but the conversation did not produce concrete plans, participants said. One participant said the president balanced promises to hold insurers accountable for their rates with acknowledgments that some cost drivers are outside of their control."
Now reality is starting to hit. Renewal rates for 2010 are starting to surface, and again we will be facing double-digit increases. We can yell and scream at the insurance companies for increasing their rates but if we step back and see the big picture the insurance companies are in a no win situation. If providers continue to increase their billing rates the insurance companies have to increase rates to cover the increase in billing costs. When this happens guess who gets the blame - the insurance company, not the healthcare provider.
If we are going to truly have health reform we need to have the employer, payer AND provider at the table to discuss what a RATIONAL reimbursement should look like. Until we establish a rational reimbursement approach, we will never "bend the curve" in healthcare. We will continue to view insurance companies as the evil empire while increases in healthcare charges go unchecked.
As NCN we believe you must have a rational reimbursement that is fully transparent to the provider, patient and payer. Until this is fully adopted there will be more meetings with the president at the White House scolding the insurance carriers who have little control on cost drivers.
In the June 3
rd issue of the Wall Street Journal, there appeared an
op ed piece by Karl Rove. He had an interesting perspective on the shape of health reform now that it has passed. As he stated in his piece, the Rasmussen poll reported the
week after health reform's passage in March that 55% of likely voters supported its repeal while 42% did not. A Rasmussen poll last month showed that 56% backed repeal; 39% did not. It seems that as time has passed since its passage the American public is starting to lose support for the bill.
In the employee benefit world between 70%-80% of all employer groups renew their employee benefits in January. We will start seeing renewals hitting the streets for these groups around the July to August time period. All indications show employers will be hit with another double digit increase in premiums. In this economy employers will be hard pressed to absorb these increases. They cannot raise their prices to offset the cost of healthcare. They will be unable to pass along the increases to their employees since they are already stretched to the max. Hard choices will have to be made. As the renewal season is just around the corner look for public support to continue to erode as more details start to surface on the implications of implementing PPACA.
We as Americans have a short attention span and desire a quick fix to everything. Just look at how we want a quick fix to the recent oil spill off the Gulf. Unfortunately, there is no quick fix to the Gulf crisis or the healthcare crisis. With double digit increases about to take place and so many unanswered questions on how PPACA will be implemented, the need for aggressive cost measurements are necessary. If cost containment controls are not implemented aggressively, employers have no other choice than to drop coverage for employees and 2014 (when majority of PPACA measures go into effect) will be a distant dream.
I recently had the opportunity to visit with old friends and enjoy dinner together. During our time, we were reflecting on each of our life's journeys and how we experienced different life events that helped shape us as individuals. As I listened to their stories, I gained a greater appreciation for the unique personalities that had been molded over the years based on these experiences. By understanding their stories of life, I may not agree with how their situations or problems are handled but I have a better understanding of their "context."
With passage of the healthcare reform bill, and as the dust starts to settle on what is actually is in the bill, it will require many entities that in the past were viewed as potential "enemies" to now sit down and dine together and understand how we will work in the new normal. As Stephen Covey wrote in his bestselling book, "one must first understand to be understood" and for healthcare to move in the right direction, we are going to need a whole lot of understanding.
Judy Miller, editor-in-chief of Managed Healthcare Executive commented in its April, 2010 issue that "of all the players seated around the healthcare reform table, payers are the only ones challenging the cost of care, and yet, they're the ones getting the beating. They know $20 for two aspirin is a rip-off, but no one is listening."
She is right. The payers are taking a beating in the press, and yet very few people are addressing the irrational charges being passed on to the payers and consumers of healthcare. Payers AND providers must "sit down at the table" and understand that a rational approach to controlling the cost of healthcare is the elephant in the room.
Both sides need to better understand the pressure points driving this irrational behavior. As Karen Ignagni, President of AHIP recently said, "To suggest that cost containment can be achieved by singling out health plans ignores the very inconvenient truth that premium increases reflect increase in the underlying cost of medical services. Regulating premiums won't do anything to reduce the soaring costs of medical care. This would be like capping the prices automakers can charge consumers, but letting the steel, rubber and technology manufacturers charge the automakers whatever they want."
Since 1994, NCN's mission has been to provide a rational, defensible and transparent payment methodology that strives bring the payer, provider and, at times the consumer, to the table to discuss openly what is a rational payment for care.
Over the last few posts I have shared concerns about the recent healthcare bill that was passed. Since the recent passage of the healthcare bill we are hearing additional "unintended consequences" of the bill. People from both sides of the political aisle are scrambling to pinpoint specific sections of the bill to support their position on why this is a "good" bill or "evil" bill.
With all the daily commentary on the potential impact of the bill (pro and con) it has made me step back from the debate and ask the question, "what if they got this right?" For many, just asking that question triggers emotions. I believe there are a considerable amount of problems with this bill that have or will come to light over the coming months but here are a few "positives" I see with the bill passing.
- We now have an American public fully engaged in the discussion of healthcare and the costs of our health system.
- There will be 24/7 news coverage on the impact of this bill on a consistent basis.
- We can no longer complain about "something needs to be done." It's done. Now what?
- With the economy still struggling and job creation challenges, innovative ideas will be forced to the forefront. We can no longer have paralysis through analysis.
One of my favorite authors, Charles Swindoll, once stated "we are all faced with a series of great opportunities brilliantly disguised as impossible situations." Yes healthcare is a mess but I believe this will force a new kind of thinking requiring new ideas that the market will desperately need to solve the problems within our current system of healthcare and future structure. What if they got this right? Time will tell.
Sunday night was a watershed event for healthcare. For over a year, the hotly contested subject of healthcare came to a final vote. We are now left with sorting out what the actual bill will mean to individuals, employers and insurance companies.
Some of the specific details of the law are starting to come out. For some, this bill brings hope, security and a brighter future. For others, this bill represents another unfunded entitlement program that will continue to send the American economy down the road of economic disaster. Whatever side you represent, a few things are certain to happen:
- Costs will continue to go up - No matter what bill was passed, costs will continue to go up. As Dr. Delos Cosgrove, CEO of the Cleveland Clinic recently said in the March 1, 2010 FORTUNE issue, "There's a dirty little secret and I might as well tell you to start with. The secret is that regardless of what happens with health-care reform legislation, the costs are going to go up. We have more elderly people, and we can do more for them. So regardless of what happens, we can really only try to contain the rate of inflation. The cost is going to go up over time." Let's make no mistake, just because this bill or any bill that was being debated is passed, it does not decrease the cost curve. It "may" slow it (that has yet to be determined. We will see) but the curve will continue to go up.
- History is a great indicator of the future - Whenever a piece of legislation is passed in Washington or at a state level, it is difficult to almost impossible to quickly correct problems with the legislation. Some would argue the recent healthcare bill passed can be viewed as an entitlement. With that said, lets fast forward two to five years. If we find we can't effectively cover the additional population either due to costs, access or other means, how are we going to put this in reverse? History shows once program put in place it is difficult for our representatives to "cut" or eliminate programs. It is political suicide. We have seen this with Medicare cuts and other programs.
- Access to primary care will be stretched even further - One of the reasons our healthcare cost curve has grown quickly is those without insurance utilizing the emergency room as the primary care provider. As we all know this is the most expensive care one can receive. Adding the 30 or so million people into the insurance market one has to ask the questions:
a. How fast will those who have used the ER for care move to a primary care provider relationship?
b. Currently, we are already stretched for quality primary care providers. How will an already stretched primary care system be able to handle another 30 million people?
Some statistics show less than 5% of today's medical students are going into primary care. In a recent article that appeared in National Review (online) by Michael Tanner from the CATO Institute, he shared that In Massachusetts, after the passage of Romneycare, the wait to see a primary-care physician increased from 33 to 52 days.
We all know the healthcare system is in need of an overhaul. We will see if this particular overhaul was the right one. For our children and grandchildren's sake, let's hope so. However, hope is not a strategy.
On Thursday, February 25, President Barack Obama is calling on lawmakers, in a bipartisan meeting to present their best ideas on healthcare reform. Leading up to the summit, the Center for Health Transformation (CHT) is hosting the "
American People's Online Health Summit," an online dialogue and live blog. I am one of the participating members presenting our ideas on constructive and meaningful payment reform that brings about true transparency and payment rationality in the market and would encourage each of you to go online to
http://www.healthtransformation.net/ and participate in this discussion.
With the recent announcement by some of the largest insurance carriers in the United States regarding rate increases and the continual issue of budget shortfalls of states to support Medicaid cost, we are at crossroads of having to make tough choices. We all desire greater access to quality healthcare for all Americans but in doing so we must develop a payment approach that is supportive to the consumer, provider and plan sponsor.
As I see it, in the coming weeks we will have three potential outcomes of the healthcare debate:
- A healthcare bill is passed no matter what. What the bill contains or the cost of the bill itself is secondary to the main issue of just "pass something." The stakes are high for both Democrats and Republicans if a healthcare bill is passed - no matter what the bill is.
- No healthcare bill is passed. In this case we start from scratch. In some ways this is good and in other ways will we end up in the same position today of having two polarized positioned on healthcare.
- Baby steps accomplished. In my mind the best scenario is for rational bipartisan thinking to take hold and work on those items we all can agree on. There are many components of the current healthcare bill that both Democrats and Republicans can agree on and we should focus on those items and work toward resolution.
We can no longer wait and assume Washington will figure this out. It will require all of us to participate and make our opinions know. Please join the discussion occurring on the Center for Health Transformation blog.
Over the last few months we have been bombarded by numbers. We can't escape numbers being quoted in the 24-hour news cycles. If you are like me, after a certain amount of "number discussion" I start to get immune to the enormity of the numbers. A quote that was originally attributed to the late Illinois Senator, Everett Dirksen (1896-1969) which he denied saying, "A billion here, a billion there, and pretty soon you're talking real money." This phrase about government expenditures has been resurrected as we debate the validity of government bailouts and proposed healthcare reform.
As I was reading the January 2010 issue of "Managed Healthcare Executive" there was an article by Julie Miller titled, "Healthcare's big numbers difficult to put in perspective"
The phrase attributed to the late Senator Dirksen echoed in my mind. Ms. Miller quoted the following statistics in her article:
- Healthcare accounts for a dramatic portion of the national economy - 16% of GDP
- U.S. Census Bureau, 2008 revenue totals for healthcare services, not including pharmaceuticals, reached $1.75 trillion, up from $1.66 trillion in 2007. That's a 5.7% gain.
- Physicians' offices earned $185 billion from private insurance, $74 billion from Medicare and $18 billion from Medicaid.
- Hospitals earned $307 billion from private insurance, $184 billion from Medicare, and $70 billion from Medicaid.
- In 2008, the American Hospital Assn. reported that Medicare and Medicaid underpaid hospitals and physicians by $88.8 billion.
- In the insured population, 14.3% were enrolled in Medicare, and 14.1% were enrolled in Medicaid.
- Based on these numbers, roughly one-third of the insurance payment received by providers in 2008 came from sources that underpay.
So what happens to the $88.8 billion that is underpaid to providers? (Remember it's BILLION, not million). You're right, it gets shifted to employers and private pay patients. Think of it as a hidden tax.
As our elected officials continue to discuss how to provide access to all Americans, (remember a key funding element for this access is through cuts to Medicare and Medicaid) deductibles and coinsurance continue to rise for individuals.
A billion here, a billion there and pretty soon there is no money left.