Friday, August 03, 2007

A Hospital Arms Race -- What'd You Expect?

The Journal Sentinel editorial board is justifiably skeptical about the claims by Aurora and Advanced Healthcare that the newly proposed hospital in Grafton will reduce health care costs. It clearly won't.

But is it all that surprising of a move? Yes, Aurora is non-profit on paper, but it's still clearly a business. And so is health care in general. It's not like the move by Columbia St. Mary (CSM) to cut 33 percent of its licensed beds in Milwaukee County -- an area the CSM's CEO admits has "a ton of unmet needs" -- is any different. They're both profit-driven moves made by businesses.

We're talking about companies whose executives pull in over a half million dollars in salary alone each year -- and rising -- and they likely have a number of docs on the payroll who make as much, if not more.

Needless to say, these aren't your Habitat for Humanity-type non-profits.

And if you want to do something about these types of non-profit profit-driven moves, asking the businesses to explain themselves isn't the answer. Really, there are two fundamental options.

First, you require health systems to justify their hospital expansions through instituting a Certificate of Need (CON), as Jack Lohman mentions in this comment. A CON would require non-profit health systems to put their expansion plans in front of an impartial public board to assess whether the community truly needs the added services provided by the expansion.

But this would really only limit moves to create an overabundance of services in highly profitable areas -- read: well-insured areas -- such as the Aurora plan to build a hospital less than five miles away from a CSM hospital that is currently undergoing a $72 million expansion of its own.

A second avenue of reform is needed to prevent systems from downsizing in less profitable areas -- read: poorly-insured areas -- in spite of the unmet needs that may exist there, which is what CSM is doing in Milwaukee County. And you can't simply demand a health system remain in an area where it's going to lose money.

But what you can do is level the playing field so that there isn't any significant difference between the profitability of one area in relation to another.

In other words, you can institute fundamental health care reform that ensures equitable universal coverage and increases the Medicaid reimbursement levels to at or near the levels of private payers that would cover the rest of the population (or, better yet, eliminates Medicaid altogether and puts everyone under the same reimbursement structure).

Without these types of fundamental reforms, expecting a business to willingly not follow the profit is a little like expecting Bonds to hang it up at 754 -- it's not gonna happen.

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10 Comments:

Anonymous Anonymous said...

Seth:

How much should the administrators be paid? Doctors? What is too much? Are we going to have a board decide how much is too much? I have no problem with a highly skilled specialist making $500,000. Are we now going to have the Government decide how much people can make.

August 03, 2007  
Blogger Seth Zlotocha said...

I don't have any problem with a highly skilled specialist making $500K, either (exec salaries might be a different story, but it, of course, depends on the situation).

But I'm not criticizing salaries in this post (I'm actually far more interested in how docs are paid -- i.e., fee-for-service vs. pre-set salary -- than how much they're paid). All I'm saying is that high salaries highlight the fact that health care is a business, not a community service, so it shouldn't be a surprise that health care systems make profit-driven moves in spite of their non-profit status.

And that's really the issue. These systems are formally non-profits, which affords them some nice tax exemptions, yet some of their profit-driven moves are negatively impacting the communities they're supposed to serve. In other words, the non-profit systems can make money, that's not a problem. But they should be making money in ways that simultaneously benefit (or at least doesn't hurt) the communities they pledged to serve when applying for that non-profit status.

In my view, we want health systems to remain non-profits as much as possible. So rather than try to force them out of that status, my preference is to put regulations in place to encourage them to act like non-profits as much as possible. Two good ways to do that are 1) restrict purely profit-driven expansions, and 2) make every area as profitable as the other to reduce the incentive for purely profit-driven expansions or downsizing.

August 03, 2007  
Anonymous Anonymous said...

I have a problem with Administrators making that kind of money, but not so much with doctors. They have to go though many years of schooling and extremely gueling hours of training. The one thing that is ironic is the descipencies between specialties. I would be willing to bet that none of the docs making the kind of money noted are primary care docs.

I read that doctor fees make up about 20% of the health care pie, so, limiting their fees are not really going to decrease health care costs that much.

We as health care users need to be smarter in using health care. We need to be talking about that.

I agree with Jack Lorman, that any non-for-profit hospital should only be built on need, and they should be about to justify why the new hospital is needed

August 03, 2007  
Anonymous Anonymous said...

Seth:

I do agree with you to a point, but non-profits have to be run like a business or else they will be out of business. However, that does not mean that they do not have a moral responsibility to provide necessary service to the public.

Take medicaid, the Goverment reimbuses hospitals and doctors so poorly that some are refusing to accept new patients. This is also true of medicare. I think we need to increase reimbursements in these areas, but also provide incentives to doctors and hospitals that exceed certain benchmarks that bring quality up and costs down.

I think docs should be paid on a fee-for service basis, however, quality and results should be measured. If a doc is paid on a salary, what is their incentaive to try to squeeze someone in during the day or to increase their patient load. Pay-for performance has a host of other problems that needs to be addressed. Any standards need to be set on reality not just on how to cut cost.

Users of health care need to take responsiblity too.

August 03, 2007  
Blogger Seth Zlotocha said...

Anon1,

It actually sounds like you agree with me entirely on the issue of regulating non-profits. I agree non-profits must be run like a business, which is why I say you can't merely force them to serve a poorly-insured area where they'll lose money. I specifically note in the post that Medicaid reimbursements need to be increased or, better yet, done away with entirely by pulling that entire population into a regulated private payer market (regulated in terms of coverage, not cost -- if structured properly, the market should keep costs down).

We're not so much in agreement on the FFS issue. Plenty of professions don't get paid on a per service basis yet still provide conscientious and dedicated service to their clients. And there's no reason that some P4P structure couldn't be set up for salaried docs where they get paid more if they, as you suggest, exceed certain benchmarks on quality and cost. It's establishing effective and accurate benchmarks that has been the difficulty with P4P.

Anon2,

You're right that most primary care docs don't make even close to $500K per year. It's specialties that have really taken off in recent years, which is why many primary care programs are facing shortages of interested med students. It would benefit states to allow nurse practitioners and physician assistants to handle more primary care services.

August 03, 2007  
Anonymous Anonymous said...

Are folks ok with huge salaries knowing that their tax dollars subdize though? I'm all for people making good money, if it's a business. But "non-profit" hospitals don't pay property taxes.

If they can afford to pay their execs that kind of money, shouldn't they help keep the roads plowed?

August 03, 2007  
Anonymous Anonymous said...

Seth:

I agree with you on NP and PA's to a point. These people are not doctors, and we should not see them as such. They do not take the place of a primary doctor. They do not have anywhere near the training as an internist. They should be used a supplement in mundane, run of the mill cases. I know where I go I have the option to see a PA, and I do when it a minor thing, but with something major, or for annual checkups I see my doctor. This is what scares me about the retail clinics, that people will just use these clinics and not go to an actual medical doctor, for the case of saving money. This is a pennywise, pound foolish approach.

August 03, 2007  
Blogger Seth Zlotocha said...

No one is suggesting NPs or PAs replace primary care doctors altogether, but they could be relied upon more to provide basic patient care, as you say, particularly in areas that tend to have a shortage of primary care docs (i.e., rural and inner-city areas).

August 03, 2007  
Anonymous Anonymous said...

As long as the PA and NP are supervised by a doctor I am fine with that.

Also, sometimes when somebody comes in with something "minor", it may if fact turn out to be "major" and PA's and NP's are not trained to handle these cases like internists are.

Also, their is the malpractice issue.

August 03, 2007  
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