With costs soaring, industry executives are trying to find ways to bring expenses under control while improving care.
By Erin O’Donnell
Illustrations by Chris Gash
Four years ago this spring, President Barack Obama gathered with a celebratory crowd in the East Room of the White House to sign into law the bill known as the Patient Protection and Affordable Care Act (ACA). Designed to provide coverage to millions of uninsured Americans, the ACA and its potential to effectively reform health care remains a topic of fierce debate. One fact, however, is clear: Health care in the United States is exorbitantly expensive. Health-care spending is growing at a faster rate than the economy and is expected to reach $4.8 trillion by 2021, accounting for almost 20 percent of the gross domestic product.
The United States spends more than any other country on health care, but patients aren’t necessarily healthier. “We’re not getting the outcomes that we would like,” says Michael Bell, adjunct lecturer of management and founder of Monitor Clipper Partners, a private equity firm. The U.S. health-care system shines when it comes to innovation and cutting-edge research, says Bell, but it’s also laden with fraud and waste. If society set out to design a system from scratch, one to “ensure the best outcome at the lowest possible cost, you wouldn’t design anything that looks like what we have today,” says Bell, who also is the former chairman of the Brigham and Women’s and Faulkner Hospitals board of trustees and a trustee emeritus. “This is the absolute antithesis of what you’d want.”
“These costs are not sustainable into the future,” says Patricia Hickey, MBA’02, vice president of cardiovascular and critical care services and associate chief nursing officer at Boston Children’s Hospital. She and other alumni who work in executive positions for health-care organizations discuss some of the trends aimed at containing those costs and regaining control of the system.
In an effort to bring costs under control, the federal government and private insurance companies have started to shift from a fee-for-service model, in which providers are paid based on the services they perform (exams, tests, surgeries), to a value model that pays physicians and hospitals based on the health outcomes of their patients. The healthier the patient—the less time he or she spends in the ICU or emergency room, for example—the lower the cost of the care and, at the same time, the more money a provider can make.
Tom Carroll ’88, CEO of South Shore Medical Center, headquartered in Norwell, Mass., with satellite locations in Kingston and Weymouth, says his organization and its partners within the Atrius Health network have entered into arrangements with some insurance companies that pay providers a set amount per patient each month. “Say, theoretically, that an insurance company pays us $300 per month to take care of their patient,” Carroll says. “We are responsible for 100 percent of the expense of that patient. So if the patient doesn’t come in to see us or go anywhere, we keep $300. If they go to a specialist, or they go to a hospital, or they have an MRI, then we pay those bills. So we work hard to keep all of our patients healthy.”
Carroll adds that the incentives for both provider and patient are better aligned in such a system. Instead of doing unnecessary tests or seeing patients time and again, he says, “We generate value by managing the health of those patients.”
Among South Shore Medical Center patients, Carroll estimates that 10 to 20 percent are chronically ill, suffering from ailments such as diabetes, congestive heart failure, and pulmonary disease. “If we just take care of them every time they go to the hospital, and then they see a specialist, and we take care of them afterward, it’s a very expensive model of care,” he says. But when staff reach out to patients and engage them in activities proven by research to help these diseases, says Carroll, then his center lowers the cost of care while providing a higher quality of life for patients.
For instance, registered dietitians, certified diabetes educators, nurse practitioners, and physician assistants are available to help diabetic patients monitor their health and manage small problems before they become full-blown crises. And because providers are often judged on hospital readmission rates, South Shore Medical Center employs care coaches who work with patients after they’ve been released from the hospital to ensure they’re taking their medications correctly and getting the help they need to prevent a readmission.
In the future, if care managers prove cost effective, providers may hire even more of these coaches to help people with all stages of care, from the first incident through recovery and beyond. “It’s not going to keep people from getting sick or getting fatal diseases,” says adjunct lecturer Bell. “But it is going to ensure that you treat them as effectively and efficiently as you can within a system.”
Ibuprofen over MRIs?
As the health-care system aims for higher quality at a lower cost, more physicians also may turn to high-end treatments only if simpler, less expensive options have failed. “When you go to your doctor because you have lower back pain for the first time, that means they’re not going to send you for an MRI, which costs thousands of dollars, when it probably can be treated with ibuprofen,” says Katherine (Collins) Tecci ’02, MBA’06, director of business operations in perioperative services at Boston Children’s Hospital. She predicts a greater initial reliance on these simpler approaches when evidence supports their use.
Hickey adds that Boston Children’s uses clinical data and research findings to create Standardized Clinical Assessment and Management Plans (SCAMPs) that outline sound care practices to treat common health problems. For example, it examined data on children with chest pain. Among the thousands of kids who had chest pain, less than 2 percent actually had a heart problem. This led doctors to develop a care algorithm that can be used to guide the treatment of these children. Physicians then convened a symposium, where they shared the SCAMP with other doctors throughout New England. “From this approach, we projected savings of about a quarter of a million dollars a year in unnecessary echocardiogram testing,” Hickey says.
Patients might be uneasy if they don’t immediately receive the pricey tests, perceiving the switch as lower-quality care, acknowledge executives. But Hickey believes this evidence-based approach should lead to healthier outcomes. “These treatment decisions are based on real-time clinical data, so clinicians can make decisions in partnership with patients based on the best available evidence,” she says.
Skin in the Game
Responsibility for costs and care doesn’t fall just on the providers. For better or worse, patients will play a larger role in these functions as well. As insurance premiums soar, more patients are compelled to choose health insurance plans that feature lower monthly payments but higher deductibles (say $2,000 to $6,000 a year). As a result, patients are changing the way they think about expensive tests and procedures, such as surgeries. “They care about how long they’re staying, how they’re going to be billed, which hospital they’re going to go to, because it really does impact their bottom line now,” says Tecci. “We’re seeing this more and more. Even though families have insurance, they’re a lot more sensitive to prices.”
Patients may shop around to seek hospitals that perform the procedures at a lower cost. Tecci says the parents of patients at Boston Children’s have mentioned using the Healthcare Bluebook, a website and mobile app that lists the going rate for medical and dental procedures by ZIP code. Tecci adds that parents are increasingly likely to question a charge that they believe is too high.
To help families understand how procedures will affect their deductibles, some insurance providers are bundling rates so patients receive just one bill that covers all services related to the procedure, explains Tecci. Boston Children’s recently negotiated a bundled rate with one insurer on a specific ear, nose, and throat procedure. A small step, perhaps, but Tecci says the single bill is easier for patients’ families to understand. She expects the practice to become more common.
On the downside, health-care organizations that serve large low-income populations suspect that high-deductible plans are causing patients to forgo certain doctor visits altogether. Although annual checkups are covered under the ACA, follow-up visits potentially are subject to the deductible and copays, says Greg White ’90, CEO of Lamprey Health Care, a federally qualified health center with facilities in Newmarket, Raymond, and Nashua, N.H. His physicians are concerned, particularly about people with chronic conditions such as diabetes and hypertension, which respond best to close attention and careful management. Time will tell if these choices are putting patients’ health at risk. “Our internal utilization data shows the drop-off in visits,” White says, “but we don’t yet have data to show any correlation with health outcomes.”
High-deductible plans can create problems for hospitals, too, says Ken Goranson, MBA’80, CFO of Benson Hospital, a federally designated critical access hospital in rural Benson, Ariz., 50 miles outside of Tucson. “It’s a bit of a paradox, because you assume that if everybody’s insured, it’s great,” says Goranson, who spent many years as a controller for a large health-care organization before coming to Benson. More people may be insured under the ACA, he says, but the number of people who don’t pay their deductible may increase as well.
To help his patients with unpaid balances, Goranson contracted with a third-party company that provides no-interest financing for up to 60 months. Not only are the terms manageable for many, but Goranson has found that people seem more motivated to repay a financial institution than a hospital. He adds that to qualify for federal funds through the ACA, Arizona was required to expand Medicaid to cover more people, which has benefited Benson Hospital. Medicaid pays less than other insurers, says Goranson, but has no deductibles.
White notes that high-deductible plans might push patients to take preventive steps to keep themselves healthier and out of the doctor’s office. “Certainly I think you need the perspective that you have control of some of your health,” White says. “Your lifestyle, and how you manage it, and things like your dental and mental health play a big role in your physical well-being.” The way health care is evolving, “you’re going to have some skin in the game,” White says.
Another way for patients to curb costs, say some executives, is to consider local health organizations for care versus the larger city hospitals. Carroll of South Shore Medical Center oversaw the recent completion of an 85,000-square-foot medical office building in Norwell, Mass. Now he’s working to encourage residents to stay on the South Shore for care. Boston research hospitals offer some of the best medical care in the world, Carroll says, but patients who seek what he calls “routine care” at these institutions pay a premium. His center works with nearby South Shore Hospital and the Beth Israel Deaconess Medical Center in Plymouth to keep patients local except for the most challenging cases. “For the normal gall bladder surgery, or putting ear tubes in, or having a tonsillectomy, you probably don’t need to drive into Boston,” he says. “We have outstanding physicians and hospitals in our local community.”
Local hospitals can offer procedures at a lower cost in part because they don’t have to support a research program. Contrast that with Boston Children’s Hospital, the largest pediatric research center in the world. A 2013 report by the Massachusetts attorney general found the hospital charges some of the highest fees in the state (although Hickey says its costs are in the middle range when compared to other pediatric academic medical centers in the U.S.).
“We are very focused on driving efficiency while always improving care,” says Hickey. For example, clinicians launched the Red Zone Initiative, a program to limit costly medication errors. Research shows that medication mistakes happen when staff members are distracted, so the hospital established so-called Red Zones, where nurses can’t be interrupted while preparing and dispensing medications. “We have significantly reduced our medication errors,” Hickey says. “This is a low-cost initiative. The cost of a few decals and raising awareness is a lot cheaper than a medication error, which averages about $50,000 if the medicine reaches the patient. And, once again, we have improved care.”
Even as Boston Children’s cuts costs, it is still an academic teaching hospital. “Our cost structure includes teaching, innovation, and research,” Hickey says. “We are working on cures for many diseases and conditions. Society expects us to do so, but, in general, nobody wants to pay for us to do that. We work every day to find ways to cure children, to avoid surgery, and to get children home faster. It’s our mission to do so.” Because traditional funding sources, such as the National Institutes of Health, have reduced grants significantly, institutions such as Boston Children’s need to find new and creative ways to make up the difference, says Hickey.
Data and Technology
The handling, storing, and sharing of patient data appears to offer new ways to trim costs and boost quality. As more organizations work to establish electronic health records (EHRs) and adopt technologies to share that information securely, executives hope to further integrate a highly fragmented health-care system.
“If you think about our banking system, you can go anywhere in the country, put in your ATM card, and get cash,” says Carroll. “But on the health-care side, you could go right outside your local community, either to another doctor’s office or another hospital, and they would have no idea who you are, what your medical history is, what medicines you’re on.” Doctors do what they can to learn about a patient, usually by ordering a host of expensive tests: lab work, CAT scans, and MRIs. An EHR accessible by doctors across institutions might eliminate some of these costs.
White of Lamprey Health Care says his community health center was an early adopter of the EHR more than 15 years ago; the center joined a group of other community health centers in New Hampshire to purchase the EHR software platform. “Once patient information is in there, it’s a gold mine of data,” White says. “You just need to get the data out and then put it into action.” For instance, data has allowed Lamprey to launch community health programs, such as a stroke-prevention initiative that measures patients’ blood pressure and then monitors those with high readings.
But new technology also can be a significant financial burden for small organizations. Goranson of Benson Hospital says that he regularly struggles to keep 60 days of cash on hand, a benchmark for critical access hospitals such as his. Like staff at all U.S. medical facilities, he and his staff are preparing for a pending nationwide switch in the diagnostic code system used for billing. Under the old system, there are about 13,000 diagnostic and procedure codes, but under the new system there are roughly 68,000 codes. “It used to be that if you broke a leg, there was a code that would say ‘broken leg,’” Goranson says. “Now if you break a leg, there are probably 30 codes that say it’s the right leg, or left leg. There are codes like ‘broke your leg dancing,’ ‘broke your leg hang gliding,’ ‘broke your leg falling down the stairs drunk.’”
Health-care facilities need to front the costs of updating their EHR to accommodate the changes and train personnel to use the new codes. Even after they’ve learned the new system, health-care providers and staff will need lots of time to document and code patient visits, says White. “I fear that we will be spending more time documenting the visit than actually seeing the patient.”
White and Goranson are both uneasy about the expected slowdown or interruption in insurance payments when the newly updated billing and payment systems go live. “Experience with lesser conversions would indicate that we should expect issues with systems compatibility,” White says. And that might cause significant cash-flow problems. “There’s an ongoing discussion among professionals in the field that we should have three to six months’ cash on hand for that period,” Goranson says, “but we’re struggling now to have 60 days’ cash.”
As they look to the future of health care, executives predict that organizations will seek even more opportunities to collaborate with each other. “We’re either going to be part of a larger system, or we’re going to be more tightly financially aligned and data aligned,” says Carroll. “Right now the marketplace is still very fragmented, and it is not delivering better outcomes at a lower cost, so we need to figure out how we can align ourselves differently to achieve those goals.”
Carroll sees a need to educate patients about managed care. “It’s often viewed as restricting access to care and diminishing the quality of care. I think that’s an enormous misconception,” he says. “We’re trying to keep people healthier, to look at those who are admitted to the hospital and say, ‘Which one of those could we have appropriately prevented?’ I don’t know many people who have gone to the hospital and said, ‘That was outstanding. I loved being there.’ The big misconception is that the next move in health care is figuring out how to ration our resources. I think our next steps forward are about how to reorganize those resources to deliver better outcomes at a lower cost.”
The ACA is a good first step toward fixing the health-care system, adds Goranson. “The ACA provides a framework that can be modified as needed, but it is a real plan that can help real people as it evolves,” he says. “The theoretical is never as effective as reality. The ACA may be flawed, but it is a step in the right direction. I think experience will help it get shaped to be more effective.”
Erin O’Donnell is a freelance writer living in Milwaukee.