6
Financing

This session explored financing issues as they pertain to regionalization. Ricardo Martinez, executive president of medical affairs at The Schumacher Group, served as session chair. In his opening remarks, he said he has observed over the years that “form follows finance.” That was quite evident to him during his tenure at Stanford when their payment structure moved over time from discounted pricing to per diems, to capitation-based diagnosis-related groups (DRGs).

SAFETY NET HOSPITALS

Lynne Fagnani, senior vice president at the National Association of Public Hospitals and Health Systems (NAPH), said that her organization represents approximately 140 hospitals across the United States. They constitute about 2 percent of the hospitals in the country, but provide about 20 percent of the uncompensated care. These hospitals also tend to be providers of essential community services, including Level I trauma care, burn care, and other emergency department care, and they also play an important role in local disaster preparedness efforts.

Financially, she said, these institutions are “very fragile.” Their profit margins are only about one-third to one-half of those of the other hospitals in the country. This is largely because about 70 percent of their revenues are derived from governmentally-funded patients (principally Medicare and Medicaid). As in commonly known, she said, these public payers underpay for services.

These hospitals are able to keep afloat financially, Fagnani said, because



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6 Financing This session explored financing issues as they pertain to regionaliza- tion. Ricardo Martinez, executive president of medical affairs at The Schumacher Group, served as session chair. In his opening remarks, he said he has observed over the years that “form follows finance.” That was quite evident to him during his tenure at Stanford when their payment structure moved over time from discounted pricing to per diems, to capitation-based diagnosis-related groups (DRGs). SAFETY NET HOSPITALS Lynne Fagnani, senior vice president at the National Association of Public Hospitals and Health Systems (NAPH), said that her organization represents approximately 140 hospitals across the United States. They con- stitute about 2 percent of the hospitals in the country, but provide about 20 percent of the uncompensated care. These hospitals also tend to be pro- viders of essential community services, including Level I trauma care, burn care, and other emergency department care, and they also play an important role in local disaster preparedness efforts. Financially, she said, these institutions are “very fragile.” Their profit margins are only about one-third to one-half of those of the other hospitals in the country. This is largely because about 70 percent of their revenues are derived from governmentally-funded patients (principally Medicare and Medicaid). As in commonly known, she said, these public payers underpay for services. These hospitals are able to keep afloat financially, Fagnani said, because 

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 REGIONALIZING EMERGENCY CARE of cross-subsidies from commercial payers and supplemental payments they receive from Medicaid disproportionate share (DSH) and upper-payment- limit (UPL) programs, which compensate them for about 25 percent of their unreimbursed care. Without these payment streams, she said, “These providers would have minus 10 percent margins. They would be completely unviable as organizations.” In a brief analysis of emergency department (ED) and trauma care financ- ing and profitability, Fagnani said she examined data from the University HealthSystem Consortium (UHC), which shares about 30 members in common with NAPH. She was very surprised to learn that trauma patients tend to have a higher commercial payment mix (33 percent) than regular ED cases (26 percent). However, she said, this depends heavily on provider location. Areas that receive more penetrating trauma (e.g., knife and gun- shot wounds related to violence) compared to blunt trauma (mostly caused by motor vehicle crashes or falls) have a very variable payer mix that ranges from 7 to 62 percent commercial payment. Regarding ED visits, she said that commercial payment ranged from 5 to 51 percent. Not surprisingly, she said, there were significant profit margins on the commercial patients and significant losses on treating patients covered by Medicare and Medicaid and, in particular, the uninsured. Fagnani said that the hospitals she represents would clearly stand to benefit from regionalization, because “payer class would not be a consider- ation if you are regionalizing based on patient need.” But then, she added, there are also issues regarding these major trauma centers and whether they have the capacity to handle more of the higher-level trauma and emergency cases. She said that her members are focusing on these issues and making improvements on ED throughput. Many have been participating in a study by the Commonwealth Fund on that topic. She added, “There are clearly things [that are] within the control of these systems [in] addressing their capacity issues, but then there are other things that aren’t in their control, such as discharge issues with uninsured patients needing long-term care and the availability of on-call specialists—all the kinds of things that the IOM study pointed out” in 2006. NETWORK OF COMMUNITY HOSPITALS Jane Englebright, chief nursing officer and vice president of the Clinical Services Group at the Hospital Corporation of America (HCA), described HCA as an investor-owned heath care company with 163 hospitals, 109 surgery centers, and almost 400 physician practices. Most of the hospitals are community hospitals, although they have one regional burn center, three Level I trauma centers, and three critical access hospitals. By

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 FINANCING most measures, the company provides about 3-5 percent of the inpatient care in the United States. The HCA network has a total of 172 emergency departments, 14 of them freestanding. One of every six ED visits is uncompensated, which amounts to more than 1 million uncompensated visits annually. However, last year 56 percent of HCA’s inpatient admissions came through the ED, and for some hospitals the figure was as high as 80 percent. Englebright said that five years ago, local hospital CEOs tended to view the ED “an important community service, but a financial loss leader.” Now they tend to see things differently. The company has found that “all of our important service lines have a significant number of their patients come through the ED.” With the exception of neonatal and rehab, “every single service line has a significant portion of their patients coming through the ED, including urology and ENT (ear, nose, and throat) and other patient populations that you wouldn’t normally expect.” “We have started to think of the ED as the front door to the hospital,” she said. “It is a source of stable volume across all payer classes during times like this. The other big financial stability factor for community hospitals is elective surgery. We are not having as many of those right now as what we had. So the ED has become very important for us in terms of maintaining financial stability as we go forward.” Englebright said that HCA has “participated in a lot of different types of regionalization.” In the nonclinical area, it has regionalized things like warehousing and payroll, and it is beginning to move into the clinical area as well, following the example of the Veterans Administration, with pharmacy services and regional labs. HCA has also participated in community-based angioplasty. Its hospitals are beginning to experiment with having the skilled team rally to where the patient is, rather than having the patient move to meet them. They have also been conducting stroke telemedicine. A REVISED MODEL FOR EMS REIMBURSEMENT Kurt Krumperman, clinical assistant professor at the University of Maryland, Baltimore County, and chair of the finance subcommittee of the National Emergency Medical Services (EMS) Advisory Council (NEMSAC), discussed EMS financing and how it fits into the discussion about financing integrated, regionalized emergency care systems. He said that the finance subcommittee took the IOM recommendations from 2006 seriously and it has used the concept of regionalization as the basis of a draft EMS financ- ing model. Krumperman said this financing model must address several key issues. First, he said, is the cost of readiness. That means the capacity for EMS systems to respond reliably, at all times, with clinically meaningful and

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6 REGIONALIZING EMERGENCY CARE consistent response times. It is also evidence-based, meaning that there is a distinction between the types of cases that require clinically meaningful response times and those that don’t. Underlying all of this, he said, is this notion of providing the right care at the right time by the right clinicians in the right place. He agreed with previous speakers who said that the right place isn’t necessarily a centralized trauma center or other specialty center. Another issue that has to be addressed in EMS financing is surge capacity in the case of disasters. Krumperman noted that the Federal Emer- gency Management Administration (FEMA) is currently meeting to discuss targeted capabilities, including triage and prehospital care in the disaster set- ting. They are beginning to define targets for surge capacity, which, he said, would provide something to aim for. Krumperman stated that surge capacity has to be built into the system; it won’t just materialize from nowhere. Currently, most reimbursement for EMS either is tax-based or fee- for-service. He noted that fee-for-service has transport-only incentives and there needs to be discussion about whether that model should be changed. He advocated that the medical dispatch and medical oversight functions be financed through a population-based tax-supported approach, similar to the way fire department and police departments are financed. He said this method would also fund the cost of readiness for ambulance service. He also pointed out that some savings are likely to be produced by implementing a regionalized system. For example, implementing regional call centers that integrate nurse triage with 9-1-1 service would help ensure that patients are transferred to the right place, whether that is a specialty center, a primary care physician’s office, a clinic, or other location. More- over, regional call centers would help identify cases where EMS response is not necessary at all. These changes would produce downstream savings that could be used to help pay for medical dispatch, the regional call centers, and system surge capacity. Instituting treat-and-release protocols would also help ensure that patients are treated in the setting most appropriate to their case. To bring about these changes, Krumperman argued that we need to move away from the fee-for-service, transport-based funding mechanism and toward a capitation model, similar to the British EMS model or perhaps a U.S. public health model. This would be designed to realign incentives so there is a system-wide incentive to ensure that patients receive the right care at the right time at the right place—rather than having individual enti- ties responding to the incentives of fee-for-service charges. “Those kinds of principles need to be included in the regionalization concept,” he said. TRAUMA CARE RESOURCES Harry Teter, executive director of the American Trauma Society, described the need to increase the amount of resources devoted to the U.S.

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 FINANCING trauma care system. He noted that he began in EMS and trauma in 1969 with the Appalachian Regional Commission. At that time, he noted, the commission had an enormous amount of money and, more importantly, an enormous amount of political clout. Teter said that one of the big problems in Appalachia at that time was emergency medical services. The service area was about the size of California and had very few major cities. There were no major hospitals, only small rural hospitals. It was critical to keep them funded and to keep them going. The commission decided that “to take care of the people of Appalachia, regionalization [was] imperative.” Teter observed that we have come a long way in 40 years, but there are still sizable gaps in the trauma care system. On the American Trauma Society website there are maps that show which areas of the country do and do not have access to a trauma center within 60 minutes through air or ground transportation. Looking at the maps, he said, it is obvious “how absolutely essential it is that we look at this problem in a regional way.” He said that these pictures are helpful in lobbying Congress and others about the importance of the trauma system. “When you go to a legislator and you talk about [trauma care] and the lifesaving work that is done, then you pull up a map, the first thing they want to know is, ‘Where’s my house? Am I covered?’ It works,” he said. He said these maps are essential in advocating for additional trauma system money. He believes this is a shared financial responsibility and noted that the Appalachian Regional Commission was a federal, state, and local partnership. “Everybody had some skin in the game and some responsibili- ties,” he said. However, “today people seem to be pushing off the respon- sibility to somebody else.” He believes these problems are not insurmountable, but may require better salesmanship. Also, trauma and EMS need more friends in the leg- islature. Fundamentally, he believes that “EMS and trauma deserve a far bigger piece of the pie than they get.” A HEALTH PLAN’S PERSPECTIVE Rodney Armstead, senior vice president for Western Regional Plan Operations for AmeriChoice, a UnitedHealth Group company, provided the health plan perspective on regionalization. He said that the hope and ultimate goal of UnitedHealth Group is to ensure that we have a system of emergency care in which “services are patient-centric, consistent, depend- able, high quality, and ultimately affordable for everybody.” Currently, Armstead noted, there is extraordinary variation in services, unit costs, and care. We know a lot of that is driven by patients who decide to utilize the emergency room as a point of entry, rather than urgent care or their primary care office. The company’s internal data suggest that

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 REGIONALIZING EMERGENCY CARE 15-20 percent of their patients account for close to 100 percent of the emergency room (ER) utilization. There is also extraordinary variation in service intensity provided to patients with the same diagnosis—differences that are not explained by case mix. “We don’t understand it, but we do know that it exists,” Armstead said. He said that this affects the capacity that is available downstream to deliver real services, particularly time-sensitive services. UnitedHealth Group supports the development of best practices to “truly standardize” the hospital care provided to patients with STEMI, stroke, and a variety of other clinical conditions. They have worked with the cardiovascular society and clinical providers and have been successful at moving those groups into the “northeast quadrant,” where they provide the highest sustained quality, based on clinical database metrics. United- Health Group has also just created a premium designation program, where providers can be reimbursed more for providing care that may increase front-end costs but is likely to significantly reduce unnecessary downstream services. In general, Armstead said, “we think that the direction that emergency services is going in the context of regionalization is good.” Actually, he said, they support broadening the effort, since UnitedHealth Group has 1,400 hospitals contracted in its overall network and there is a need to bring more consistency to them. From their perspective, regionalization and the topics being discussed at the workshop should enhance service predictability and patient care. They acknowledge that some institutions are going to be the best for particular types of time-sensitive services. Those then should become part of the stan- dardized procedures and protocols. He also said that evidence-based guideline measures should be formally incorporated, and UnitedHealth Group would like to support and advance that effort. They think these measures will lift performance and lower service variation within the community hospitals, rural hospitals, and other facilities that are critical to continuing to provide the right kinds of services. We think, he concluded, that there has to be an alignment of incentives and reimburse- ment that rewards quality, efficiency, service, and cost-effectiveness. AUDIENCE DISCUSSION Workshop chair Arthur Kellermann said it is ironic that at a time when we are all very excited about the concept of the patient-centered medical home and the incentives it brings for coordination of care and chronic disease management, there is no discussion of giving these medical homes incentives to provide prompt and timely access to care. “Unless and until they do,” he said, “patients will continue to come to the emergency depart-

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 FINANCING ment.” Consequently, payers will continue to struggle with the issue of high-cost, emergency care services used for primary care treatable (e.g., sore throat) and/or primary care preventable (e.g., asthma exacerbation and hyperglycemia) problems. David Boyd, administrator of the EMS Act of 1973, said back then the federal government had tried many different approaches to try to decrease the flow of patients into emergency departments—public relations spots on TV, focus groups, and so forth. “None of them worked, anyplace in the country,” he recalled. So, he asked, “what do you do?” He noted that this issue is arising again with the arrival of the H1N1 virus. He concluded flatly, “you will not stop the public from accessing the emergency department. They are con- ditioned to do so. They have a high regard for the emergency department, until they get there. So you have to figure out mechanisms to safely divert nonemergent cases to other settings. People are seeking professional contact and professional consultation. Where they know it exists now in America is in the emergency room, around the clock, and they expect it to be there.” He added, “We really painted ourselves into that corner. There has been no way shown to diminish that in any way. I think it’s the paradigm that we are dealing with today.” Community Engagement and Education Andy Bern, of the American Emergency Medicine Association, said that “in regionalization, the component that is really not talked about at all is outreach and educating the public.” He said the experts can’t even come to a single definition of many of the terms that we are using, and there is even more confusion in the community. Bern said that South Florida, where he practices, has hospitals that are centers of excellence and that talk a lot about their resources and capa- bilities. This leaves the public with the idea that they are mecca hospitals, and they’ll show up for things the hospitals are not actually prepared to do. For example, one of the hospitals is a Level II trauma center, has PCI (percutaneous coronary intervention), capabilities, and is a neurosurgical center. But it does not have any licensed pediatric beds. He said, “we see kids in the emergency department, but if they are sick, we transfer them to our sister hospital. We can’t really do anything once they come to the door because of federal regulations.” Bern said that “the hospitals do a very poor job of outreaching to the community and saying, ‘This is what we have resources for; this is what we don’t have resources for, so go somewhere else.’” He observed, “I have never heard a hospital say, ‘go somewhere else,’ for anything. That leads to confusion.”

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0 REGIONALIZING EMERGENCY CARE “EMS does a great job,” he said. “But the vast majority of patients come to the emergency department without using EMS. If we don’t focus on that [other] component, we are missing a large part of the patient popula- tion that comes to us.” Fagnani of the National Association of Public Hospitals and Health Systems responded, “I think most people assume any hospital has the capa- bility to do whatever they need. It’s a very good question.” Armstead of AmeriChoice said, “This is a heartburn issue for me, because we have so many of our patients that utilize the ER as a first stop.” He said he has never seen a “game-breaker” that changes how people think regarding what the purpose of an ER is. “We need to do something . . . that trumps federal regulation.” He added “I think one of the things that we haven’t seen is a very focused and sustained campaign . . . in improving people’s behaviors as they consider utilizing emergency services.” Triaging Patients Through the 9-1-1 System Richard Hunt of the Centers for Disease Control and Prevention (CDC) said that he and Kurt Krumperman had talked about the idea of utilizing 9-1-1 call centers as triage units more than 10 years ago, but that the idea has never taken hold. Why is it that, collectively, we have not moved this idea forward? he asked. Is it because of legal barriers? Are the business models not there? Is it just that we haven’t made it a priority? He argued that we may need to resurrect this idea and focus on it again. Krumperman said that the answer is easy: yes to all of the above. He said he does know of a couple of places where it is happening, however. Richmond, Virginia, has incorporated triage into their 9-1-1 center. Char- lotte is about to implement such a system and will also be conducting research on it. So, he said, the concept is there. They just hadn’t approached it in a scientific way and hadn’t done the research necessary to validate it. But we may be entering a new period where we can examine this and really see what the effect is (hopefully from a clinical perspective and also a sys- tems perspective). Englebright of HCA noted that in the United Kingdom if you have febrile illness you don’t get into the car and drive to the ER. You pick up the phone and a caregiver comes to evaluate you. They prefer that you don’t come to the ER waiting room and share it with others. She said this idea has come up in discussions regarding this flu season, as has the idea of drive-by hospital visits where the patient doesn’t get out of the car. Fagnani added that “some of our members have used nurse call centers just to decompress their EDs, and it has been very effective. I know they have done that in Denver and other places. If you provide a place for someone to call rather than spend eight hours waiting in the emergency department

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 FINANCING for something that they don’t need to be there for—a nurse call center can be very effective.” Creating Value for the Community Joseph Waeckerle, chief medical officer in the State of Missouri Office of Homeland Security, said that in seeking to regionalize health care, “one of the things we have forgotten is the patient, the community.” He argued, “We need to make them our advocates.” To do that, he said, “The com- munity has to win something.” Englebright said that HCA had experience in buying smaller hospitals that were financially troubled and had low-volume programs, and has gone through the process of trying to close a program, or move a program, or combine two small hospitals and make them one. She said, “When you sit and look at the numbers, it makes absolute rational sense, but when you go to the community, it’s not really a rational discussion that you get into.” Something HCA has tried, Englebright said, that has helped has been to refocus these conversations. They now focus on issues such as what the facility could be used for. Maybe it’s not a full-service hospital, maybe it’s an urgent care center with an observation unit. For the clinicians working there, the financial rewards and the rewards in terms of career satisfaction are definitely different than in a full-service hospital. So the question is, how we can convince everyone of the value of those preventive, stabiliz- ing, and referral activities? They need to be seen as very important parts of the overall system and critical to taking care of a small community. It just won’t necessarily be a place where a full trauma response team needs to be waiting on standby. Teter said that a community without an EMS/trauma system is like a community without fire service or police service. Would we dare risk that? Surveys have shown that the public expects to have high quality trauma care and EMS and, in fact, they are critical. Fagnani said there is definitely com- munity support for those systems. She said if you look at initiatives around the country where her members have sought to generate additional income, she said that hands-down the most persuasive argument for additional rev- enue is the trauma argument. Communities value that over any other thing that her members talk about. Disincentives for Integration Alex Valadka, a neurosurgeon from Texas, said that when patients arrive at a facility in an integrated health care system, the clinicians are able to access that patient’s records and history and do not waste a lot of time repeating workups or ordering medications for which there is a

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 REGIONALIZING EMERGENCY CARE known adverse reaction (see Magid presentation, Chapter 3). However, in an unintegrated system, he said, the patient parachutes in, the physicians do not have any of the records, and “they reinvent the wheel every time.” This “has got me thinking that perhaps hospitals actually generate sub- stantial revenue from repeating a lot of tests that would not be necessary if they were more integrated,” he said. “In other words, if we integrate and information is much more transmissible, is it going to decrease a hospital’s bottom line?” Fagnani said that what health reform is all about the incentives. Fee- for-service incentives are all about consuming resources, not managing patients well. She added that the hospitals she represents see a large number of uninsured patients, and so the incentives there are to be as efficient as possible and not use resources inappropriately. “But,” she said, “You are raising a good point. The incentives [for integration] aren’t there in the cur- rent reimbursement system.” Englebright said that in a community hospital setting, ED physicians order the diagnostic tests. “The ED physicians want the data that they need to take care of their patients,” she said. “If it’s already there for them from a previous provider, that’s fine. If they can’t find the information quickly and easily, they are going to order the tests done again.” She concluded, “I don’t think in the emergency care situation, there is an incentive to order unnecessary or duplicative tests.” Martinez asked whether it was fairly common for payers to deny claims for tests because they are not considered medically necessary, even if ordered by a physician. Englebright stated that HCA has a large staff devoted to arguing with insurance companies over these decisions. She said that evidence-based protocols that are agreed upon in advance might offer a solution to this problem. Bundling Payments to Regions Stephen Epstein, an emergency physician from Boston, also inquired how we might be able to use financing methods to reduce duplication of services. In Boston, he said, there are five Level I trauma centers in a city that probably requires only two. He said this problem stems from the fact that the market fails to compete on price. When the government sets a price for an episode of care—for example, bundled payments for STEMI procedures—there is no competition based on price when another center comes in and wants to offer the same services. The competition that exists is essentially based on hospital reputation, primary care provider recom- mendations, and (perhaps eventually) quality data. Epstein said that bundled payments are meant to reduce some of the perverse incentives from fee-for-service payments and the tremendous varia-

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 FINANCING tion in cost that occurs by region. He asked whether it might make sense to make bundled payments to regional systems for episodes of care. Essentially, the payers would predict epidemiologically that a region with a certain size population would have a specific number of STEMIs. They would then say, “We don’t care how you take care of them. Here’s the money. You figure it out.” Epstein asked the panelists whether that would be likely to reduce some of the duplication in services, or whether they had heard of similar ideas. Krumperman said he has talked about organizing payers on some sort of regional basis, so they are also integrated into the regional system. He said he’s not sure how to do that, but it’s a similar concept. Systems that have the capacity to provide the care would receive money up front, and then would figure out how best to make the arrangement work. Patient outcomes would then be measured by the payers. Adding Capacity Martinez asked the panelists representing hospitals how payment, com- petition, and capacity issues play out for them. Englebright said that for the most part, “We are not competing for patients, we are competing for physi- cians.” She explained, “We have to have the latest toys to get the surgeon to come work at our hospital. The fact that there is already one robot on one side of town and we really don’t need one on the other . . . if that’s what it takes to get the good neurologist in our shop; we’ll go buy another robot.” She continued, “I think the lack of alignment [between] the physician and the facilities that exists in the community is a cause of a lot of that duplica- tion, particularly on some of the high-end, high-cost toys.” Fagnani said “our hospitals aren’t looking to duplicate services as a money-making venture. They are doing it to take care of the patients that they have that come to their doors.” Valadka said that it’s an oversimplication to say that hospitals need to have fancy toys just to get doctors to go there. This is an important issue, because we all know that health care technology is one of the biggest drivers of increasing costs, he said. Actually, he said, he knows of many physicians who practice at facilities that have fewer toys, because the overall experi- ence is much better at those facilities. For example, neurosurgeons want to take some of their elective cases to the local trauma hospital, which is not as highly regarded and does not have all the toys as one of the larger facili- ties, because that hospital has a better operating room, better nursing care in the ICUs (intensive care units), and better follow-up care, so it’s better for the patients. Prehospital providers are often in the same situation, Valadka said. They could go to the hospital that advertises all the bells and whistles, but they choose to go to the place that is not as fancy but where they believe

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 REGIONALIZING EMERGENCY CARE the patients will be seen more quickly, the triage is more efficient, and the overall care is better. Valadka acknowledged that “toys” also matter to patients. He noted, “Every day I get families wanting more CT [computed tomography] scans and MRI [magnetic resonance imaging] scans and brainwave tests and blood tests. I usually say, ‘No, we don’t need to do that, because I [already] know what’s going on. It’s not going to give us any more information. If something changes, we can get those tests.’ But, I’ll come out and tell them, ‘If I have to order this because you want it, even though it’s not needed, you will have to pay for it out of your own pocket.’” He said, “I usually don’t get asked that question again.”