Health care systems should not be run for profit, but rather for people's health

I wrote in a recent blog (�How can a health care system lead not to ruin but to, actually, health?�, December 28, 2013) that our health care system ��is a parallel to our financial services industry: private enterprise is given a license to make money from everyone, and the government finances it. The only difference is that for financial services, the government steps in to bail them out only after they have already stolen all our money, while in health services the profit margin is built in from the start.� A recent article in the New York Times, �Hospital chain said to scheme to inflate bills�, by Julie Creswell and Reed Abelson (January 24, 2014) takes this a bit farther.

Discussing the Department of Justice�s decision to join several whistleblower (�qui tam�) lawsuits against the for-profit hospital chain HMA (not to be confused with the nation�s largest, HCA) for aggressive policies that seek to maximize profits by �encouraging� (at threat of termination) doctors to over-admit patients, they quote Sheryl R. Skolnick from CRT Capital, who wrote �Investors seem to think that D.O.J. investigations, qui tam suits and allegations of serious Medicare fraud are simply a cost of doing business.� That�s right. Illegal activity has a price � fines � but the fines are small enough that they do not discourage the illegal activity. The authors write �Many settlements run only into the tens of millions of dollars. That�s a corporate slap on the wrist for companies whose stocks typically soar when executives push the profit envelope. Only if the penalty is at least $500 million, Ms. Skolnick said, are corporations likely to find the cost a deterrent.� Or, of course, if the heads of these corporations are sent to prison, but in another parallel with the financial services industry, this is not happening. Not to Lloyd Blankfein of Goldman Sachs or other financial titans (such as CEO Jamie Dimon of JPMorgan, featured in the same issue of the Times, �JPMorgan, fined billions, approves raise for its chief�!), or to Rick Scott, former head of Columbia/HCA when it was fined $1.7 billion in 2003 for massive Medicare fraud). Scott, of course, is now the Governor of Florida.

It is difficult to imagine the hubris and arrogance of the �masters of the universe� who run the financial services industry, or the large hospital corporations. At least, it is for me, and possibly for other people who believe that the health care system should be first, second, third, and last about benefiting people�s health. It does not seem to be for the C-suite executives of even moderate-sized hospitals, who often come from accounting and finance backgrounds. The argument is that if there is �no margin� there is �no mission�, and that in the competitive environment of health care it is necessary to have good business managers to make it possible for a hospital � or hospital system � to even survive, not to mention to prosper.

Good management is important. Good management means the ability to run an organization efficiently, to create effective systems and effective working relationships, to enhance quality and limit unnecessary costs. It is absolutely necessary to build a system that is about benefiting the health of people. This includes financial knowledge and financial management ability. But increasing profit, increasing market share, taking �desirable� customers away from �competitors� has no such place; the health system has no business in being organized in such a way that these things are even possible.

This statement is so completely at odds with the way the health system is currently structured that it bears repeating. There should be no financial incentive for competition in health care. There should not be more services available than a community needs because every hospital wants to provide it and take �customers� from their competitors. If, for example, a community is large enough that it needs one MRI scanner, there should be only one (or 2, or 3, or whatever the medical need is). In the current structure, however, the hospital with that one would have a competitive advantage over other hospitals in the community, so everyone needs one. The same is true for any profitable service: cancer treatment, heart procedures, neurosurgical procedures, etc. Profitable �product lines� are, thus, in oversupply, and this means that they are overused, often with risk to the recipients, and certainly the cost to everyone is increased. Conversely, necessary services that are not profitable, such as burn and trauma care, are rarely in oversupply, frequently relegated to the community�s public hospital, and sometimes not available at all.

A community should have all the health care resources its people need, but should not duplicate � and triplicate � services so each can compete. It is bad in terms of the overall cost, and the oversupply of profitable services, and it is arguably worse in that all these hospitals are competing to get the same patients � those who are well-insured with �high profit� diseases, and to not care for others � uninsured, poor, and those needing services that are not well reimbursed.

This is craziness. Health care is not luxury condominiums, or expensive watches. It is something that every single person should get all of that they need, and no one should get what they do not need. There should be competition between hospitals to be excellent, and measures of excellence should include comprehensiveness, quality, cost-effectiveness, and caring for everyone equitably (not equally, but based upon their health care needs). And, if there are to be financial rewards, they should come for doing this well. There must be no services that are particularly �high-profit�, nor patients whose economic status makes them �undesirable�.

We have a long way to go. Various strategies have been tried in the past, from certificate of need (CON) programs that decided whether a community needed a new pieceof capital equipment in the 1970s and 1980s, to disproportionate share funding for hospital caring for higher percentages of uninsured people and quality improvement organizations more recently. But all of these efforts have been gamed, because there was no comprehensive plan in place to ensure that no patient, and no disease, was more or less profitable than another. We need to have a system in which each person with a health care problem is provided the care that they need. No gold cards. No profitable conditions. Not hard to understand.

The time for this to happen is now.

Changing the structure of health care delivery systems: to benefit the patient, the providers, or the insurers?

In an important series of 3 articles beginning on the Sunday before the New Year, �Doctors Inc.�, Alan Bavley of the Kansas City Star looked at the increasing acquisition of physician practices by hospitals, and the impact this has on access to, quality of, and cost of health care for patients. The first article, �Medicine goes corporate as more physicians join hospital payrolls�, describes the �what�, that:

�Since 2000, the number of doctors on hospital payrolls nationwide has risen by one-third, according to the American Hospital Association. In the Kansas City area, fully 55 percent of physicians are now employed by hospitals, Blue Cross and Blue Shield of Kansas City estimates. That includes virtually all cardiologists and most cancer specialists.� 

These changes are not limited to the KC area; he cites both national data and that from disparate regions such as Spartanburg, SC and Phoenix, AZ. Part of the reason, the "financial model", which is described in this first article, is that such �integrated� practices generate internal referrals, keeping patients within the system, as well as generating lucrative procedures. Physicians get a piece of the action; they get guaranteed salaries paid in part by the hospital or health system which is getting downstream revenue for their referrals.

And it makes these hospitals and health systems a lot of money, because they can now charge a lot more money. Bavley quotes �Robert Zirkelbach, vice president of America�s Health Insurance Plans, the industry�s trade association. �When a hospital buys a practice, its rates will increase in the following year�s contract. Increases of 20, 30 or 40 percent are not uncommon. It�s not 3 or 4 percent, that is for sure.�� 

It is also not always good for patients, as Bavley illustrates with examples of people who were referred internally and had delayed diagnosis. (One story discusses a woman discouraged from going to the academic medical center at which I work � full disclosure � for a second opinion regarding her lung cancer; the "reasons" given were both that she �didn�t have time�, and because she would see �young doctors still in training�.) Sometimes it is fine to see doctors within the system, and certainly this can be, and is, encouraged, but discouraging people from seeking outside referrals can also be hazardous to their health.

The Affordable Care Act (ACA) encourages the creation of �Accountable Care Organizations� (ACOs), which would be responsible (at least hopefully, in the best of scenarios) for the health of a population. At a minimum, they would seek to decrease the degree to which the delivery of health care is a series of episodic events paid for individually, instead taking on a global responsibility including inpatient, outpatient, and long-term care. This would, in theory, change the usual patient experience from seeing one (or many) doctors or having one (or many) ER visits, each charged and paid separately, culminating in a hospitalization, and then discharge to one (or many) doctors, or a long-term care facility (paid separately), and failure of care resulting in readmission to the hospital (paid again). The idea is that all levels would be coordinated to provide the best care at the most appropriate (inpatient, outpatient, long-term, home based) level.  In some settings, particularly for fully-integrated plans (where the providers of care are also the insurers) such as Kaiser, this works relatively well.

However, as Bavley makes clear in his series, written as part of a yearlong Reporting Fellowship on Health Care Performance sponsored by the Association of Health Care Journalists and supported by The Commonwealth Fund, particularly in the second article, ��Facility fees� add billions to medical bills�, there is often a great cost to those who are paying, the patient and their insurer (including Medicare and Medicaid). This is because Medicare (and, following their lead, private insurers) pays an additional fee (the "facility fee") for services, and especially procedures, done in a hospital outpatient facility beyond what they would pay for it to be done in a doctor�s office. (This is also addressed in the series by Elisabeth Rosenthal, "The $2.7 Trillion Medical Bill" in the New York Times.) 

Why? The original intent (as is often the case) was good, intended to both save money and improve care, by having many procedures done in outpatient rather than inpatient settings, where the cost would be even higher. And (as also so often is the case) the providers realized that this system could be gamed as well. The physician fee for a visit or procedure done in an office is greater than that done in a hospital clinic, but is expected to include all the overhead. In a hospital-based clinic (which just has to be owned by the hospital or health system; it doesn�t have to be on the campus and can be in the same doctor�s office that used to be separate) there is a somewhat lower doctor's fee, but there is also a facility fee that, together with the doctor�s fee, is much higher in total than the office-based reimbursement; indeed, the facility fee can be far higher than the physician fee. Thus, the hospital makes money, and can share some of that with the physician, allowing the physician to make a lot more money without the overhead and risk. Voil�! Physicians are incented to become employed by hospitals!

I am a doctor and work in a medical center, so I understand the impetus for this from the point of view of providers, both doctors and hospitals. Medicare is ratcheting down its reimbursement, and a particular form of support for hospitals caring for a disproportionate share of uninsured is being cut back, and operating margins for many hospitals are getting thin or negative. Doctors are making less money (arguably some of them were making far too much, but they still don�t like making less) and will thus endorse efforts to have hospitals support them and maintain their incomes. The problem is that the cost to consumers goes up, especially when co-pays and co-insurances that come out of patients� pockets, even when they are insured, go ever upward. 

Medicare is, sadly, responsible for much of this situation, as illustrated by the following: seeking to reduce costs for unnecessary admissions, Medicare has empowered bounty hunters (called �RACs�) to go after Medicare �fraud� by reviewing admissions to hospitals for patients who could have been care for in the hospital on �observation� status, which will save Medicare money. Hospitals are thus very careful to only officially �admit� people who meet very strict criteria. However, because �observation� status is officially �outpatient�, while Medicare saves money the patient pays more out of pocket, because this is under Medicare Part B, not the Part A that covers hospitalization. Complicated, but what it comes down to is what is financially good for Medicare is financially bad for the patient. Is this what we want?

I hope not. Yes, some of the fault is Medicare, and the fault is also providers (hospitals and doctors) seeking to maximize profit (even if �not-for-profit�) by manipulating the rules of the system. The fault is that we have Rube Goldberg-type complex constructs put in place to encourage behavior by providers, and providers are figuring out ways to work the system to their benefit. The real problem is that we do not have a straightforward system to deliver the highest-quality, necessary, health care to all people but a mess of conflicting incentives where gain to one component (i.e., insurers) is a loss to another (i.e., providers) and that they then take actions that benefit them and the overall loser is the patient. Bavley quotes an email from a board member of a hospital system to the Chief Financial Officer that said �Let�s be realistic. Employing physicians is not achieving better cost, it�s achieving better profit.�

That is not what our national health policy should be doing. A health system that did not permit gaming but straightforwardly paid for health care,  and eliminated the profit motive, would solve these problems. The answer is to put everyone in Medicare, in a single-payer system, so some patients are not �more desirable� than others. And to have Medicare, which is now covering everyone, pay for the appropriate level of care for every patient, where doctors and hospitals have no incentive to label a person�s hospitalization as �admission� or �observation�, or an outpatient visit as �hospital based� or �office based� because there is a difference in the reimbursement.

It can be done. It is done in Canada. It is done in some fashion in every other developed country. If we decide that the health of our people is more important than the profit of the health care industry, we can do it also.