Power to the Physicians, Not the Hospitals

Larry Wedekind - Tuesday, January 06, 2015

President Obama has explained his approach to health reform on numerous occasions. “Let’s find out what works, and then go do it,” the president says. In other words, let’s find something we like and then go copy it. Yet after spending millions of dollars on pilot programs and demonstration projects, there is little to show on behalf of this concept.

The Congressional Budget Office has studied the demonstration projects on three separate occasions (here, here and here) and each time has concluded that their performance has been lackluster and disappointing. They are producing no serious savings and are unlikely to do so in the future.

What about grading hospitals based on the quality of care? One recent study finds that Medicare’s reporting has had almost no impact on mortality. Another survey finds that quality report cards not only don’t work, they may do more harm than good. What about paying for results? The latest study of pay-for-performance finds that doesn’t work either. Accountable Care Organizations? The latest results show no reason to be hope­ful. Electronic medical records? The latest survey of all the academic literature shows they don’t improve quality or reduce costs. Indeed, a new study in Health Affairs found that when doctors can easily order diagnostic tests online, they tend to order more tests — increasing costs.

Yet, even as all the demonstration projects are failing, there are numerous highly successful examples of success prior to and outside of the periphery of the Patient Protection and Affordable Care Act (PPACA).

Putting Hospitals in Charge. Have you noticed that in every area of the country, doctors and healthcare professionals are nearly all congregated around hospitals? This is true regardless of whether you live in a rural area or in the city. Why did that happen? Is it because the doctors want to be close to the hospital so that their patients can access the hospital quickly from their offices? Not really. Rarely does a patient go to the hospital for inpatient treatment directly from their doctor’s office. However, hospitals have outpatient imaging, laboratory, and physical therapy departments that are often accessed by patients directly from the physician’s office. This close proximity makes it more convenient for patients to access their needed outpatient diagnostic testing. It allows the doctor to make rounds during the day without taking too much time away from the office. This congregation of physicians around hospitals also allows physicians to talk to each other during lunch hours in the lounges and on the inpatient units – thus facilitating exchange of clinical information and cross referral patterns. These are all valid reasons for the congregation of physicians around hospitals.

However, a primary cause of our escalating Medicare costs is that hospital financial viability depends upon their ability to fill their beds on a daily basis. To make matters worse, the supply of beds exceeds normal market demand in most urban areas. No general acute care hospital can exist and operate its required ER, inpatient, and ICU units based on outpatient revenue alone. The capital equipment, high priced labor, ER related bad debt, and regulatory costs are prohibitive.

Unfortunately, hospitals are trying to solve this problem in three undesirable ways.

First, they are responding to the over-supply of beds by trying to exercise significant control over the referral patterns of the physicians. They have typically built and controlled the placement of physician office buildings in order to control and capture all inpatient and outpatient referrals. Too often these hospitals have offered significant financial incentives for physicians to lease space in the hospital-owned physician offices located adjacent to the hospital and to utilize the hospital on a preferred basis. Hospitals have also formed Equity Joint Ventures with physicians and Physician-Hospital Organizations (PHO’s) in order to integrate the physicians into the hospital goal structure. (See the MedPAC report here).

Physicians have found that the hospital environment allows them to significantly increase their incomes and this has resulted in churning of specialist referrals, unnecessary and duplicative procedures, and longer lengths of stay for patients. (Remember that the longer the hospital stay, the greater the probability of costly nosocomial infections and medication errors.)

This close relationship and dominant position of the hospital with respect to the physician has also resulted in a huge increase in unnecessary and preventable admissions (examples of regional variation here). Some physicians are paid fixed stipends under the guise of medical supervision fees by the hospital to help the hospital fill its beds every day. Others are under other financial arrangements. In Texas and in other parts of the country many hospitals pay physicians up to $7,500 per month or more for essentially doing nothing other than to being loyal to the hospital and attending a couple meetings a month. “Being loyal” means, among other things, admitting patients when the hospital administrator or marketing person calls and tells them there are too many empty beds.

The second undesirable trend is hospitals buying up physician practices and employing physicians immediately after medical school residencies or after having been in private practice so that the hospital can exert even greater control over physician referral patterns. (See more information here.) This trend has an even greater impact on cost escalation than joint ventures and the other physician control practices mentioned above. The hospital typically pays the doctor a salary greater than previously possible when the physician was in private practice. It also allows the physician to go home earlier. The hospital basically buys the physician’s loyalty. As a result productivity suffers and practice costs increase. The hospital either passes this higher cost onto the patients or absorbs it.

Many hospital organizations have also purchased Electronic Health Record (EHR) systems and are giving these systems away or selling them at “below cost” to their loyal doctors. They believe that owning and having immediate access to the clinical data generated by these doctors will allow the hospitals to increase their admission rates.

The third undesirable trend consists of hospitals responding defensively to PPACA by forming their own Accountable Care Organizations (ACO’s) and trying to either intimidate or entice physicians into joining their ACO’s, even though physicians know that this is not in their own best long term interest or the interest of their patients. This is the fault of the legislation itself. By allowing hospitals to even form an ACO, the new health reform law fails to recognize that hospitals are simply a complex clinical tool in the hands of physicians and that the hospital’s overriding motivation and focus is filling beds, not improving the overall health of their patients. Putting hospitals in control of an ACO through management contracts is as ridiculous as letting the fox guard the henhouse. CMS has exacerbated the problem by awarding Pioneer ACO status to Hospital-based Physician Organizations (HPO’s) around the country instead of awarding Pioneer ACO status to true physician-based organizations that function as Integrated Delivery Systems (IDSs).

Hospitals are financially motivated through the DRG reimbursement system to send their hospitalized patients home early; often resulting in readmissions for the same diagnosis. Although we now have “admission and discharge criteria” regulations in place that try to prohibit hospitals from profiting from readmissions, it is relatively easy for them to circumvent the regulations because the DRG system has expanded significantly to allow different diagnostic codes (ICD-9 codes) for basically the same clinical problem. Hospitals are in a position to game the system and this is a common practice today. It is a very costly game, however, and the taxpayer is the ultimate loser.

Putting Physicians in Charge. The physician is the only one truly positioned (through clinical knowledge, experience, and relationship with the patient) to improve the health of patients and any legislation that is enacted must recognize this truth. (This is not to say that patients don’t have considerable power over their own health, but sickness and injury happen to the best of us and we are often powerless to heal ourselves without the knowledge and experience of a good physician.)

If hospitals were not empowered by legislation to control physicians in these three ways, unnecessary admissions and lengths of stay would decrease dramatically across the country. Costs would go down across the board, regardless of age group, but especially among Medicare patients. This has been the experience of many physicians who have formed or participate in an Independent Practice Association (IPA) that engages in patient centered, care coordination whose primary goal is the improvement of the health of their patients (gates but available with free membership).

These physician-based care coordination organizations empower their participating physicians to offer patient centered Medical Homes and surround these Medical Homes with care coordination that significantly reduces healthcare costs through reduction of:

  1. Unnecessary ER visits.
  2. Unnecessary hospitalization and readmissions.
  3. Fraud and Abuse (billing for visits, tests and procedures that did not occur).
  4. Duplicative services billed due to lack of continuity of care.
  5. Duplicative billing of services, testing, and procedures that were only performed once.
  6. Unnecessary procedures and services , and
  7. Churning of specialist consults in inpatient settings.

Care coordination organizations also improve medication compliance and disease management compliance, which in turn reduces costly ER and hospital utilization. They do this primarily through the establishment of patient-centered medical homes. This is a system that ensures that the patient’s PCP is engaged with the patient directly in the physician’s office and across the continuum of care (including specialist, outpatient, and institutional care). The patient’s clinical and medication history is known throughout this continuum of care. Also, the PCP or physician extender is available to the patient 24/7.

Physician extenders are often used by care coordination organizations in the homes of patients to ensure that the patients are in compliance with their prescribed medications and treatments and that the home environment is relatively safe. All information gleaned from these home visits is shared with the PCP or specialist involved with the patient and clinical goals and care plans are updated and refined in order to assist the patient in staying well. Patients with chronic diseases are encouraged to take advantage of their medical home by going there often and the PCP is compensated well through profit sharing by the IPA for being available 24/7 and actively engaging in best-practice medicine and care coordination.

The Way Forward. In summary, hospitals must be taken out of the control and management of ACOs and physicians must remain independent and free of hospital control in order to appropriately participate in patient centered care coordination. The current trend of hospitals employing physicians following medical school residencies and purchasing thriving primary care practices is a threat to physician directed care coordination and will bankrupt both the hospitals which employ these physicians and the healthcare system itself. Physician independence and physician engagement in medical home and care coordination through integrated Independent Practice Associations (IPAs) is essential to dramatically lowering the cost of Medicare. Hospitals must be viewed as a “utility” available to the physician when necessary. Current experiments in bundling of physician and hospital services together in an Evidence-Informed Case Rate (ECR) methodology by an IDS or ACO are important to determine if this methodology can lower the cost of coordinated care when hospitalization is necessary. It is quite possible that bundling of physician and hospital services together into one fee, when controlled by the independent physician organization, can foster competition and thereby lower costs for hospitalization. Still, the multiple benefits of taking hospitals out of the “control” position relative to physicians and care coordination and empowering physicians to take the lead in IPA controlled Care Coordination systems are manifold.

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