Health Care Industry

A few weeks ago, we highlighted the surprising fact that top nonprofit hospitals in the U.S. are making a ton of money, even as many of them shirk their legal duty to serve the uninsured. Some are now even charging patients enormous sums up front before treating them for cancer and other serious conditions.

As one commenter pointed out here at the time, though, many other hospitals are living much closer to the edge. Now we have what looks like some hard evidence of that, courtesy of the restructuring consultants Alvarez & Marsal. The firm’s recent report on hospital finances (PDF link) concludes that more than half of the 3,861 hospitals it surveyed are technically insolvent or “at risk of insolvency.”

Those findings, however, are quite a bit less dire once you dive into the details. The firm reports that 53 percent of the hospitals it studied don’t earn a profit on patient care, meaning that they’re forced to make up for medical losses with charitable donations, government funding, gift-shop receipts, parking fees and a variety of other sources. The firm contends that such funding can get a lot shakier in tough economic times — thus its classification of such hospitals as “at risk of insolvency.”

That’s an awfully loose definition, though, and it raises the obvious question of whether Alvarez & Marsal is basically trying to drum up some consulting business by scaring hospital administrators, state and local governments, and large hospital chains. That thought apparently didn’t occur to the WSJ, which wrote about the firm’s study under the headline, “Hospitals Face Financial Squeeze.” (The full article requires a subscription, although the Kaiser Daily Health Policy Report also provided a helpful summary.)

As it turns out, Alvarez & Marsal also looked at a more conservative measure of financial distress — namely, whether hospitals can generate enough income to replace old buildings and equipment. The firm looked at earnings before interest, taxes, depreciation and amortization, or EBITDA, a measure of operating cash flow before capital expenses and other costs. Hospitals with EBITDA amounting to less than four percent of revenue are supposedly unable to fund even a “survival” level of capital investment, according to the analysis.

By that standard, only 19 percent, or 744, of the 3,861 hospitals in the study are technically insolvent, Alvarez & Marsal found. (All but seven of those facilities also rack up losses on patient care.) That’s still a pretty large number of hospitals in financial peril, but it’s nowhere near as serious as A&M apparently want us to think.

Unsurprisingly, the firm concludes that there are too many hospitals — or, in consultant-speak, that the industry “tolerates excess capacity that would be unheard of in rational economic markets.” Maybe yes, maybe no — the economics of healthcare are so twisted in most respects that I’m not sure anyone can say with certainty. (At least anyone who doesn’t make their living telling businesses how to restructure themselves, that is.) Meanwhile, anyone interested in taking on the challenge of “rationalizing” the hospital industry would be wise to check out Jane Sarasohn-Kahn’s recent post, “Why it’s impossible to close a hospital.”

Image by Flickr user Giant Ginkgo, CC 2.0

Electronic medical records could let patients travel freely to doctors of their choice, improve their odds of getting the right care in emergencies and reduce medical errors, duplicated tests and unnecessary prescriptions. They’re also the standard in most industrialized nations as well as U.S. healthcare systems such as the Cleveland Clinic, the Mayo Clinic and the Veteran’s Administration hospital system.

Yet while the move to digitize all those color-tabbed folders filled with illegible, hand-written patient records has barely gotten underway in the U.S., the backlash is already here.

This morning, for instance, the WSJ asked the scary question: “Are Your Medical Records At Risk?” (The WSJ Health Blog also offered a summary of the article.) The story summarizes several recent cases of hospital lapses that may have exposed electronic patient data to outsiders, although the only concrete evidence of harm — if you can call it that — involved the recent gawking at Britney Spears‘ medical records by staffers at the UCLA Hospital System. Nevertheless, reporter Sarah Rubenstein concludes that a “steady stream” of privacy violations “threatens to undermine the health-care industry’s effort to adopt electronic medical records.”

Privacy concerns, of course, are real, and there’s no excuse for medical centers that don’t better protect the security of patient records. The simplest way to do that is probably to make them liable for any serious data breach — perhaps by requiring them to pay for lifetime care of any patients whose data is misused.

But it’s clearly an overstatement to write, as Rubenstein does, that security concerns have been a “major barrier to health-care digitization.” Only 14 percent of all U.S. physicians use electronic records in the first place, and one major reason is that digitizing paper records and subsequently retraining doctors, nurses, technicians and office staff to use the new systems usually costs far more than any individual doctor’s office or hospital is likely to save over the short-to-medium term.

According to an article last year in the NYT, doctors actually reap only about 11 percent of the savings from electronic-medical record systems, with the rest typically flowing to insurers. “The doctors bear all the costs, and others reap most of the benefit,” David Brailer, a former Bush administration czar for health-information technology, told the newspaper.

A second shot at digital records came last week in the New England Journal of Medicine, where two doctors at Beth Israel Deaconess  Medical Center fret about the limitations and potential downsides of electronic record systems. (The paper by Pamela Hartzband and Jerome Groopman requires an NEJM subscription.)

Part of the problem, Hartzband and Groopman write, lies with the ways they’ve observed other doctors using — more to the point, abusing — the systems:

Many times, physicians have clearly cut and pasted large blocks of text, or even complete notes, from other physicians; we have seen portions of our own notes inserted verbatim into another doctor’s note. This is, in essence, a form of clinical plagiarism with potentially deleterious consequences for the patient…. This capacity to manipulate the electronic record makes it far too easy for trainees to avoid taking their own histories and coming to their own conclusions about what might be wrong. Senior physicians also cut and paste from their own notes, filling each note with the identical medical history, family history, social history, and review of systems. Though it may be appropriate to repeat certain information, often the primary motivation for such blanket copying is to pass scrutiny for billing. Unfortunately, these kinds of repetitive notes dull the reader, hiding the important new data.

In other cases, the problem is that the electronic record includes too much information:

Similarly, electronic medical records can reproduce all of a patient’s laboratory results, often dropping them in automatically. There is no selectivity, because it takes human effort to wade through all the data and isolate the information that is pertinent to the patient’s current problems. Although the intent may be to ensure thoroughness, in the new electronic sea of results, it becomes difficult to find those that are truly relevant.

The digital records also risk distracting doctors and obscuring their ability to focus on their patients’ problems:

One of our patients has taken to calling another of her physicians “Dr. Computer” because, she said, “He never looks at me at all — only at the screen.” Much key clinical information is lost when physicians fail to observe the patient in front of them.

Hartzband and Groopman are most concerned that electronic records encourage a form of “cookie-cutter” medicine, in which doctors rely on digital templates and computerized diagnostic decision trees in place of their own intuition and experience. (Groopman expands upon this theme in his recent thought-provoking book, How Doctors Think.) This is definitely an issue worth cogitating about, although my suspicion is that the major problems of U.S. medicine are more likely the result of too little standardization and dissemination of “best practices,” not too much.

While these issues are all real, it’s still important to recognize that electronic records can be misused the same way as any other tool, particularly by those not properly trained in their use. Any new technology involves a learning curve, and that’s especially true if the underlying tool isn’t particularly flexible or user friendly, as many electronic-record systems undoubtedly are not.

Recognizing that fact should lead to an argument for better standards, training and interfaces — and to their credit, that’s more or less where Hartzband and Groopman end up by the close of their essay. But the average doctor reading their NEJM piece could be forgiven for drawing an entirely different conclusion — and if enough were to do so, that really might be a “major barrier to healthcare digitization.”

Screenshot of a Second Life EMR simulation by john-norris, CC 2.0

People who’ve just been diagnosed with a life-threatening disease already have plenty of things to worry about. Now comes one more unexpected concern: Many large hospitals are demanding up-front payment before they’ll admit patients for cancer treatment and other expensive care.

This WSJ story is a classic of the genre, here told mostly through the story of cancer patient Lisa Kelly. Diagnosed with leukemia, Kelly went to the renowned M.D. Anderson Cancer Center in Houston, but was told she wouldn’t be treated for her leukemia until she paid $45,000 up front — a sum that ballooned to $105,000 the day she turned up for her first appointment. The hospital continued to bombard her with payment requests throughout her treatment, one time sending a business-office representative to one of her doctor’s appointments. Another time, nurses refused to hook her up to a fresh chemotherapy infusion until her husband presented a payment receipt, according to Kelly.

There’s plenty to chew on here, starting with the fact that this is yet another excellent example of our whack-a-mole healthcare system, in which the primary goal of hospitals, insurers and patients is to shift escalating healthcare costs onto someone else. It’s a nasty, zero-sum game that’s responsible for much of the economic inefficiency — not to mention substandard care — that we see throughout the system.

There’s also the question of whether financially secure nonprofit hospitals like M.D. Anderson, whose net income was $310 million last year, should be turning the screws on sick patients simply to reduce their own cost of uncompensated care. Nonprofit hospitals get generous tax breaks in return for serving their communities, with indigent care traditionally a big part of that mission — although many hospitals have recently reneged on that bargain.

But the WSJ buries the most interesting nugget from the story, which is that hospitals like M.D. Anderson are free to reject a patient’s insurance if they don’t think it provides sufficiently comprehensive coverage. This happened to Kelly, who had a limited-benefit plan that should have covered about $37,000 worth of treatment. Since that was less than 30 percent of the estimated total, M.D. Anderson refused Kelly’s insurance, forcing her to pay cash and then file for reimbursement from her insurer.

The reason this is a big deal isn’t just the fact that it forces sick people to tap their life savings and to fight with insurers for payment (hospitals are obviously a lot better at the latter than are most individuals). The real problem is this: Almost all hospitals charge far higher prices to the uninsured than to those with insurance, and while the WSJ story doesn’t exactly spell it out, Kelly was apparently on the hook for a much larger bill once M.D. Anderson rejected her insurance. Once Kelly moved to a more comprehensive health plan, for instance, the cancer center immediately knocked 25 percent off her bills.

In other words, nonprofit hospitals actually stand to benefit by declining their patients’ insurance, because it helps them sidestep the discounted rates they negotiate with insurers. (Those negotiations, of course, are simply another form of cost-shifting, in this case involving insurers pushing off costs onto doctors and hospitals.) This particular move is attention-getting largely because it amounts to gouging sick people, but it’s really just indicative of the countless ways in which the pursuit of medical excellence and patient health often runs completely counter to the pursuit of cash in today’s healthcare system.

Photo via Flickr user pingnews.com, CC 2.0

With the week drawing to a close, here are three healthcare stories you might have overlooked:

1. Thirteen years after House Democrat Louise Slaughter first proposed it, the Genetic Information Nondiscrimination Act, or GINA, finally passed both houses of Congress. President Bush has pledged to sign it. The legislation bans discrimination by employers or insurers on the basis of genetic tests. For a full roundup, see Andrew Pollack’s GINA story in the NYT.
2. Pharmacy-benefit managers, or PBMs, are companies that promise to save employers or insurers money by cutting the best possible deal on drug prices. As the NYT revealed last Saturday, however, most PBMs also have a lucrative side business as exclusive or semi-exclusive distributors of various “specialty” drugs — expensive treatments that are typically prescribed for rare conditions. Since specialty-drug sales can amount to a significant fraction of PBM revenues these days, the obvious question is whether these outfits really have much incentive to hold down prices with aggressive negotiation. (The obvious answer also seems to be “no.”)
3. Health insurers largely had a lousy week as they reported first-quarter earnings. WellPoint said its net income dropped by a quarter; UnitedHealth said a bad flu season cost it $80 million more than expected. The AP ran a decent roundup of the earnings carnage in the healthcare sector, from which only Aetna was spared thanks to membership growth and higher premiums. For a look at one insurer’s specific problems — namely the fact that fewer small businesses appear able to afford health insurance in the first place — check out the NYT.

Photo courtesy of Flickr user Môsieur J, CC 2.0

Give WellPoint credit for clarity, if nothing else. Its first-quarter earnings were terrible, but the company’s outline of its plans to bounce back — reasonable or not — also offered a revealing window into how insurers actually think about the business of providing health coverage.

With virtually the whole insurance industry in a funk, WellPoint’s 25 percent net-income decline isn’t exactly unique. Compared to rivals like UnitedHealth Group, however, WellPoint didn’t beat around the bush when it came to diagnosing its ills. In short, the giant insurer found itself paying too much out in benefit claims and taking in too little in the way of premiums. Coupled with losses in its investment portfolio — recall that insurers are basically claims-paying machines with giant piles of cash that have to be invested somewhere — that was enough to force WellPoint to lower its 2008 forecast for the second time since March.

But it’s WellPoint’s plans for recovery that are particularly illuminating. In the company’s conference call yesterday, CEO Angela Braly forthrightly noted that WellPoint will — guess what? — raise premiums, primarily on sick people and the elderly who are using too many prescription drugs, while doing its best to pay less for medical care.

Don’t take my word for it, though. Here’s Braly on how WellPoint plans to “minimize attrition of profitable business due to rate increases,” straight from WellPoint’s most recent conference call:

At times certain benefit designs, in particular geographic areas have worse than average experience and require higher than average rate increases. As an example, we have certain blocks of high-deductible plans with richer coverage after the deductible is met that require and are receiving higher than average rate increase. For many of these customers we can offer benefit buy-down that included different coinsurance percentage after the deductible is met to produce a more affordable premium.

In other words, people who use their insurance too much need to pay more, either through higher premiums or by shouldering a larger share of their healthcare costs (”coinsurance” refers to the percentage of covered medical costs that the individual still has to pay, even after copayments and deductibles). There’s something weirdly admirable about the candor with which WellPoint reduces the business of insuring people against financial ruin resulting from unexpected health problems to a matter of shifting financial burdens to the sick — or, at the very least, those who want the best possible protection for themselves and their families.

We now expect a full year 2008 benefit expense ratio to be in the range of 83.3% to 83.6%, less than the first quarter of 2008 due to expected premium rate increases, enhanced medical management initiatives, a more normal pattern of prior period reserve adjustments, seasonality adjustments and membership mix changes.

Here, Braly is promising to cut WellPoint’s claims payments — the “benefit expense ratio” refers to the percentage of premiums that the company has to pay out in claims — from first-quarter levels in a variety of ways. “Medical management” is shorthand for rationing care, denying claims and generally making it more difficult for members to cost the company money. “Membership mix changes” is another interesting phrase, one that suggests WellPoint is eager to insure more healthy people and fewer sick folks. (Recall that WellPoint unit Blue Cross of California is currently in hot water with state regulators for using any excuse possible to cancel the policies of people who start running up big medical bills.)

Braly also had some revealing things to say about WellPoint’s advantages vis-a-vis its competitors, particularly in terms of its size (the insurer is the nation’s largest in terms of membership):

However, we also continue to have what I believe is the best value proposition in the market. We have more providers in our networks, with better discounts than anyone else. Well healthcares locally delivered, and locally consumed, having scale matters. We have been the number one market share in almost all of our 14 Blue states, and four of these states, our market shares in excess of 40%, and another four of these states our market shares in excess of 30%.

This allows us to negotiate deep discounts from providers in our Blue states and to implement programs intended to optimize the cost of care. We are aggressively executing on our strategy to expand best practices and improve contracting performance across our organization. We have launched a pay for performance initiative in many of our states, like the one in California we announced last month to establish consistently effective program across the enterprise.

This is a dense and complex way of saying that, by virtue of its size, WellPoint is better positioned to hammer down costs in negotiations with doctors and hospital groups. Note that size doesn’t appear to offer any other advantages — here, it’s all about shifting WellPoint’s costs of providing coverage back onto the medical providers who lack the bargaining power to push back aggressively. WellPoint’s scale doesn’t make its business any more efficient or lower its costs in any other way, simply because — as Braly herself notes — “healthcare is locally delivered and locally consumed.” (I’ve corrected what looks to be a transcription error from SeekingAlpha.)

I’m not sure I’ve ever seen a health-plan executive explain so clearly exactly how little economic value health insurers create with a business model that essentially amounts to taking money out of one pocket and putting it into another. Nor have I ever heard an insurance CEO spell out the vast gap between the way health plans actually work and how they market themselves. It’s all worth bearing in mind the next time you happen across something like WellPoint’s statement of its “commitments” as an insurer:

At WellPoint, we are dedicated to improving the lives of the people we serve and the health of our communities. From the boardroom to the mailroom, every associate is expected to honor the company’s commitments to our diverse customers, fellow associates, shareholders and the communities we serve - helping us become the most trusted choice among consumers.

Our business strategies mirror our commitment to providing affordable quality care to our members and the public. In line with our vision to become the most valued company in our industry, we must:

• Bring affordable quality health care and coverage to medically underserved communities
• Educate people to take an active role in their own health
• Work with our health care partners to improve quality of care
• Help shape public policy that makes health care more affordable and more accessible

WellPoint’s Social Responsibility Report outlines how the company is improving the lives of the people we serve and the health of our communities.

For much of the past two decades, a war has been brewing between traditional community hospitals and a new breed of doctor-owned specialty hospitals that focus on specific treatments such as cardiac angioplasty, outpatient surgery or knee and hip replacements. Although often cast in loftier terms, in reality the fight is largely over money, particularly the question of whether specialty hospitals “skim” relatively healthier, better-insured patients for the most lucrative medical procedures.

Until yesterday, that battle threatened to flare up again in an unexpected theater –a farm bill now pending before Congress, which specialty-hospital foes briefly hoped might put down their rivals once and for all. Although community-hospital supporters apparently withdrew the provision in question last night, fans of real medical drama — the money-grubbing, cost-shifting kind, that is — have nothing to fear: This issue isn’t going away any time soon.

Agriculture and medicine, of course, typically have little more than a passing acquaintance. But the gigantic farm bill, which mostly authorizes the nation’s Byzantine and hugely expensive system of agricultural subsidies, has recently turned into a grab bag of new handouts for farmers and unrelated tax breaks — $12.5 billion worth as of the most recent count. That’s left House and Senate lawmakers scrambling to find offsetting budget cuts, one of which turned out to involve Medicare payments to specialty hospitals.

Some legislators proposed forbidding doctors to refer patients to their own specialty hospitals, a change that would most likely kill them outright. A Congressional Budget Office analysis apparently suggested the move would save Medicare $2.4 billion over ten years, although that number appears to be a moving target. In any event, the American Medical Assocation got wind of the idea last week and promptly blasted it as a “sneak attack” on specialty hospitals that would limit patient choice. (The fact that AMA member-physicians also have financial interests at stake went oddly unmentioned.)

Just this morning, CongressDaily (via the Kaiser Family Foundation) reports that the measure has been withdrawn, so specialty hospitals will live to fight another day. They’ll almost certainly remain a political hot potato, however: Five years ago, Congress enacted an 18 month moratorium on new specialty-hospital construction as part of a Medicare bill, and ever since doctors and hospital systems have sparred on Capitol Hill over whether specialty care can — or should — be allowed to survive. Powerful senators such as Democrat Max Baucus and Republican Charles Grassley, both ranking members of the Finance Committee, have squarely taken the side of community hospitals, even going so far as to denounce a recent Forbes story that extolled the virtues of specialty care.

The main problem here is that both sides are right. Specialty hospitals do offer the possibility of encouraging better, more efficient and innovative care for various medical conditions — although it hasn’t been proven yet, to the best of my knowledge — and they do represent competition for community hospitals that all too often seem utterly resistant to change, particularly given the shameful rate of medical errors they currently tolerate.

Yet specialty outfits also benefit from a loophole to a general prohibition on physician self-referral, they specifically concentrate on procedures that reap higher reimbursements from Medicare and private insurance, and they do benefit from treating patients who are generally healthier and better-insured (PDF link) than the overall patient population — all of which has the potential to leave community hospitals in the lurch due to no fault of their own. (There’s also a separate question raging over whether specialty hospitals can provide decent emergency care when something goes wrong, or whether they should be able to dump their emergency cases back on the community-hospital system.)

I certainly don’t have an answer to the problem, but until someone comes up with one, this legislative tug-of-war is going to be a recurring issue for hospitals of all stripes.

(Hat tip to Bob Laszewski’s Health Care Policy and Market Review.)

(Photo of a South Korean medevac exercise from Flickr user soldiersmediacenter, CC 2.0)

Is the ethical backlash against drug and medical-device company payments to doctors finally changing behavior in the industry’s executive suites?

That’s certainly the impression you’d get from the announcement last week by Zimmer Holdings, a major manufacturer of hip, knee and spinal implants that declared it was adopting “an enhanced standard for ethical business practices” that will “aggressively reduce potential or perceived conflicts of interest” inherent in paying doctors as consultants.

Once you get past the corporate-speak, the details are actually pretty interesting. Zimmer has banned all gift-giving to all healthcare professionals, ended the practice of sponsoring doctor presentations at medical conferences, and is “moving toward” eliminating quotations and endorsements of its products by doctors except for references from scientific papers. The company also says it has “suspended” consultant payments during a review intended to bring that program in line with an internal “corporate compliance program.”

Zimmer, however, doesn’t exactly deserve a gold star for good corporate citizenship. The company was one of five device makers accused by federal prosecutors of paying kickbacks to doctors who used its artificial knee and hip replacements. Last September, Zimmer and three other companies paid a total of $311 million in fines and agreed to federal monitoring of reform efforts in order to avoid prosecution. (Zimmer’s share was $169.5 million, just over twice the next-largest fine. A fifth company, Stryker Orthopedics, cooperated with the probe and avoided a fine, although it’s also making internal changes.)

That said, it’s a welcome first step, although given how prevalent these unsavory practices seem to have been — at least according to the U.S. Attorney’s office in New Jersey — I can’t help wondering just how thorough or lasting these changes are likely to be. (Short answer: At least 18 months, since that’s how long the feds will be looking over their shoulders.)

The orthopedic-implant industry’s newfound commitment to ethical business practices also parallels a similar effort in the drug industry. There, many companies are now offering to voluntarily disclose their own payments to doctors in apparent hopes of warding off new regulations that will force them to do so.

Most everyone agrees that the U.S. healthcare system is tremendously wasteful, but few people appreciate just how much of that inefficiency is baked into the business models of health plans and hospitals alike. No matter how conscientious the management of any individual company, efforts to cut costs and improve service often have the perverse effect of reducing revenues.

In other words, initiatives that would be considered the hallmark of good management in other industries are frequently just bad for business in healthcare.

A recent report from the PricewaterhouseCoopers Health Research Institute titled “The price of excess: Identifying waste in healthcare spending” illustrates the point nicely. The paper itself is mostly a compendium of well-chewed problems in healthcare, although it does have some eye-opening numbers — starting with its estimate that more than half of the $2.1 trillion spent on healthcare every year is wasted. (Again, not a typo.)

What’s particularly interesting about the report, however, are its examples of the way fragmentation and perverse incentives drive inefficiency — even if PwC sometimes pulls its punches along the way. Consider, for instance, its discussion of complexity in medical billing (emphasis mine):

About 700 different organizations, health plans, and employers pay the bills at Johns Hopkins Health System in Baltimore. Each one has different rules about what’s eligible for payment, how much to pay and when to pay. As one of 4,500 hospitals in the U.S., it’s a microcosm of the complexities that add costs to the health system. An in-house study found that potential administrative complexity fuels expenses in scheduling, registration, financial clearance, coding, claims processing, credentialing and utilization management for inpatient, outpatient and home care services. Reducing the redundancies could save the hospital more than $40 million annually, and that’s only “numbers we could identify if we could just get computers talking to each other,” said Richard Davis, vice president of innovation and patient safety at Johns Hopkins. Hopkins is “trying to focus on the front-end administrative tasks that are just required to get the patient in the door and receive a payment from a payer,” but larger savings could result from cross-sector collaboration.

Why aren’t those cross-sector collaborations flourishing? Let me hand the microphone back to PwC:

Culture: The industry often lacks the will and the agility to change business processes. Doing the right thing may not be the easiest path, making change more difficult.

[…]

Lack of a coordinated focus: The financial benefits of creating efficiencies in the health system often accrue to external organizations. Many participants in the system believe that someone else will solve the system’s ills, and so they go back to working on their own organizational issues.

Translation: Most individual companies have no economic incentive to become more efficient, because they won’t benefit directly from the necessary changes, and in fact might well lose business as a result. Claims processing is a good case in point, because reimbursement confusion and payment delays actually make money for health plans while costing everyone else.

This is a state of affairs that leaves most healthcare managers and executives in the position of rearranging deck chairs on the Titanic, because they aren’t going to get much support pushing quality or efficiency initiatives that cause the overall organization to suffer.

One last word from PwC (emphasis again mine):

Reducing waste isn’t merely an exercise in subtraction. While the costs of waste are enormous and well documented, focusing on costs alone isn’t constructive. Cost reduction, particularly in one sector, won’t necessarily eliminate waste. It can increase costs elsewhere in the system. Organizations cannot and will not work against their own self-interests.

So, a question for my readers: Is it possible to push for real efficiency and quality gains within health plans and hospital chains, or is it merely an exercise in frustration?

(Photo of medical waste by Flickr user Stephen Witherden, CC 2.0)

Two weeks after health plans like Wellpoint announced they would follow Medicare’s lead in refusing to pay for eight preventable medical problems in hospitals, Medicare has upped the ante by proposing nine more conditions for which it won’t fully reimburse hospitals, including surgical infections, wild swings in blood glucose and hospital-acquired lung collapse. (Medicare’s own press release lists all nine conditions.)

In general, I think this sort of strategy represents a good step toward addressing preventable medical errors that may result in 100,000 or more deaths a year. I’ve also been inclined to discount doctors’ complaints as the entrenched resistance of beleaguered physicians who resent further bureaucratic intrusion into their medical-care decisions. In an ideal world, Medicare edicts such as this one would primarily goad hospitals into devising ways to avoid such problems in the first place.

I’ve already noted some doctor-blogger complaints about Medicare’s decision not to pay for hospital falls, and their concerns that the only way to prevent them entirely would be to restrain most elderly patients — a drastic solution, not to mention an inhumane one. Now Roy Poses of Health Care Renewal has weighed in with some similar concerns regarding the new guidelines, arguing that many of the problems they address aren’t fully preventable even with the best care. Since these are also predominantly issues of older and sicker patients, Poses suggests, hospitals may soon have yet another incentive to deny care to the individuals presumably most in need of it.

Looking specifically at Medicare’s proposal to limit reimbursement for episodes of delirium in hospitals — which, according to Poses’ review of the literature, can be reduced but not eliminated by consultation and psychoactive drugs like haloperidol — he writes:

 Is delirium a “never event?” Well, hardly ever…

Thus, it appears that the surest way to avoid incurring CMS’ proposed financial penalty for delirium occurring in the hospital would be to avoid admitting sicker patients who are most likely to become delirious. This, of course, is a perverse incentive that could make care less accessible for those who need it the most, and would violate hospitals’ fundamental mission to care for the sick.

Similarly, I would challenge the brainiacs who came up with this proposed rule to show how any of the supposed “never events” could be reliably prevented, short of turning away the sicker patients who are likely to suffer these events.

I think Poses raises a good point here, particularly if Medicare has raced well ahead of established evidence and is turning its error-prevention program into yet another attempt to shift costs onto doctors and hospitals. Those kinds of zero-sum games are everywhere in the healthcare system, and are one of the main reasons that medical care costs so much and improves at a glacial pace.

Still, I can’t help but think there’s something perverse in the notion that changing any sort of financial incentives is automatically suspect because it will lead doctors to mistreat patients. Taken to extremes, that notion amounts to an argument that doctors should be paid whatever they want, since any limits on their compensation gives them an incentive to cut corners somewhere. While that’s undoubtedly true in the larger scheme of things, it’s not exactly a useful guide to the hard, real-world issue of deciding where best to spend scarce healthcare dollars.

Poses’ argument is also silent on the question of what, exactly, payers like Medicare should be doing — if anything — to force hospitals to fix their unacceptably high rates of medical error. If experience to date is any guide, we’ll be waiting some time for most medical centers to handle the problem on their own, since there’s very little evidence that things have gotten much better since the Institute of Medicine’s 1999 report. And that’s largely because hospitals haven’t tended to face direct consequences for the vast numbers of fatal but preventable mistakes that occur on their watch.

Should we just accept this state of affairs as the cost of modern healthcare? If not, exactly how do doctors like Poses, who is normally quite sympathetic to the need for reform and keenly aware of the perverse incentives that drive healthcare institutions, propose to change things without financial incentives of some sort?

(Photo via Flickr user skycaptaintwo, CC 2.0)

Health insurers are hoping to ride to the government’s rescue on drug safety.

With various pharmaceutical scandals still in the headlines (Vioxx, Avandia and Vytorin chief among them), drug safety has been Topic A in certain corners of the healthcare world, especially with the Food and Drug Administration still coming to grips with how it will deploy the new safety-monitoring powers it received last year. Now comes word that health plans themselves will soon lend a hand by data-mining their vast collections of medical-claims and prescription-drug information to catch possible side effects as quickly as possible, the WSJ reports.

Well, not that soon. But by early next year, Wellpoint plans to be scanning through the health records of about half its 35 million members to identify drug problems. (Why half? No idea - maybe they’ll be the only ones whose electronic records are sufficiently up-to-date to yield decent data.) UnitedHealth and other insurers are also looking into similar programs.

But would it work?

The WSJ article is pretty bullish on the prospect, noting that Kaiser Permanente’s own internal patient reviews led it to begin backing away from use of Vioxx a year before Merck withdrew it because of heart-attack danger. Early passes through its own data convinced Wellpoint that it would have identified problems with both Vioxx and an anti-cholesterol statin from Bayer called Baycol within about four months of launch — but nothing related to heart risk associated with the diabetes drug Avandia.

Is that good, bad or indifferent? At the moment, it’s kind of difficult to say — and that’s one reason this sort of plan makes me just a little nervous. While the WSJ quotes FDA official Janet Woodcock saying that “[w]e’re bringing together all these different groups in a network so that we can ask them to look at the same question at the same time,” it’s far from clear whether FDA and other experts will have access to the raw data or just analytic summaries provided by the insurers. (Wellpoint’s own press release has nothing on that point either.)

Not only would the latter make it much harder to draw reasonable conclusions across different health plans, it would also give outsiders no way to double-check the insurers’ calculations — something of a priority when public health is at issue. Oddly, the WSJ is silent as to whether FDA also plans to tap the single, huge Medicare database for this sort of information as well, which would provide at least a publicly available backup to these private databases.

There is a season, churn, churn, churn

Finally, there’s another problem with relying on health insurers: Churn. I haven’t been able to find any decent numbers suggesting exactly how many customers switch into and out of health plans every year, but I suspect the number is fairly substantial. (If anyone’s seen data suggesting how long the average non-Medicare recipient remains with one health plan, I’d greatly appreciate a pointer.) That’s an issue here because if drug problems take time to crop up — say a year or two, or five — churn among the insurers is going to fragment the data so much that a danger “signal” may never be seen.

So it’s important to be clear that FDA has basically decided to safeguard the health of the American people on the cheap, which is fully in keeping with the general ethos of the Bush administration. However, it also suggests that the insurers may well eventually miss a major drug-safety scandal, forcing us to start a new drug-surveillance scheme from scratch — wishing along the way that FDA had just done it right the first time.

(Photo of a German open-pit mine from Flickr user ReneS via Creative Commons)