Health Care Industry

Hospital advertising is, by and large, a baleful influence on healthcare, not least because it so often bolsters demand for expensive but unproven procedures that inflate medical bills and insurance premiums without any guarantee that they’re making anyone better.

Whew. Now that I’ve got that out of my system, let me direct your attention to two great in-depth looks at the hows and whys of hospital advertising that help explain its prevalence and its unintended effects. First, there’s an older piece by Paul Levy at Running a Hospital, in which the Beth Israel Deaconess Medical Center CEO argues that it’s actually hard to know whether hospital ads actually draw patients or encourage elective procedures. Instead, Levy suggests, the main value of such ads is to demonstrate top-level support for a medical facility’s doctors and staffers, thus improving morale and making it easier to recruit skilled and motivated people.

Next is Maggie Mahar’s more recent take over at Health Beat, which focuses on the cost of hospital advertising, questions whether healthcare dollars might be better spent on broader public-health campaigns or in providing care for uninsured or underinsured patients, and critiques the way some community hospitals have forged corrupt deals with local media in order to promote their own services via free media.

I’ve written sympathetically about the efforts of Medicare and private insurers such as WellPoint to eliminate avoidable medical errors — particularly so-called “never events,” such as surgery on the wrong side of the body or operations that leave sponges or instruments inside the patient — by refusing to pay for follow-up care.

The plan still seems like a good one in principle, but as the list of so-called “never events” continues to expand, the risk that it may jeopardize medical care in new and different ways is starting to rise.

Back in April, I took a look at some objections raised by Roy Poses of Health Care Renewal regarding the preventability of patient delirium. Today’s installment involves a more recent post by Val Jones over at Revolution Health, in which the good doctor suggests that hospital-acquired infections may also be impossible to avoid, and that jeopardizing hospital revenue via the “never event” mechanism is more likely to lead to overtreatment and other undesirable patient-care approaches:

I could go on theorizing, but you get the picture. In my opinion, the “never events” strategy is fatally flawed and will result in excessive litigation, ping-ponging of patient care, over-use of antibiotics, increases in adverse drug events, a rise in multi-drug resistant bacteria, and further reduction of services to the poor. A more reasonable approach would have been to document infection rates at the most hygienic facilities, and offer incentives for others to strive for similar rates.

The “never events” strategy is destined to do more harm than good for patients with hospital acquired infections, though the medical malpractice attorneys may enjoy a new income stream. This is just one more reason why we should never say never.

While Dr. Val isn’t exactly wrong here, I think she’s only scratching the surface. The real problems have less to do with the never-event goals than with the way hospitals are reimbursed in the first place, the general inability of anyone to look at their outcomes data and the widening gulf between their patient-care mission and their financial goals.

I totally agree that the never-event mechanism is a blunt weapon — but sometimes you really have to whack the mule with a two-by-four to get its attention. Had hospitals shown the slightest interest in addressing the issue of medical error on their own, we wouldn’t be having this discussion today.

For a short break from our normal diet of current healthcare challenges and problems, I thought I’d draw your attention to Richard Eskow’s recent post on seven long-term medical and healthcare trends that should be on the radar of anyone concerned about healthcare issues. His post over at The Sentinel Effect is definitely worth reading in its entirety, so I’ll just highlight his first three items:

1. Doctors abandoning Medicare and Medicaid as reforms like SCHIP boost the number of eligible patients;
2. Shortages of primary-care doctors, again partly because of increased demand brought about by the expansion of healthcare access;
3. Underutilization of medical services as people — particularly those on high-deductible health plans — “self-ration” care;

It’s a great, though-provoking list that works its way from immediate concerns to some seemingly far-out but far-from-inconceivable issues. Check it out.

A few days ago I noted Joe Paduda’s argument that hospitals have regained some pricing clout against health insurers, enabling them to pad their bottom line at the expense of health plans. After some further scouting around, I still think the picture isn’t entirely clear. So let’s lay out the data points and take a look.

The first, and most extreme, case involves the nonprofit Carilion Health System in Roanoke, Va. Thanks to a 1989 merger that gave Carilion an effective local monopoly, the eight-hospital system is able to charge procedure rates vastly higher than those at small independent providers:

Carilion charges $4,727 for a colonoscopy, four to 10 times what a local endoscopy center charges for the procedure. Carilion bills $1,606 for a neck CT scan, compared with the $675 charged by a local imaging center.

The hospital justifies the lopsided costs as necessary to subsidize its emergency services and charity care — a classic justification that has very little to do with how hospital pricing works in the real world. That pricing is almost wholly a function of the rates an outfit like Carilion can force insurers to accept, and here the nonprofit has enjoyed tremendous success. Although hard data is in short supply, the WSJ pulls together several threads that suggest Roanoke insurance premiums have skyrocketed, including the story of a construction-company owner who complains that his rates have jumped 50 percent in the past three years.

Meanwhile, several analysts have a grimmer take on hospital financials. Via Fierce Healthcare, I came across Melissa Davis’ recent hospital-earnings analysis at TheStreet.com, which argues that both Tenet HealthcareHealth Management Associates remain in the intensive-care ward and . Tenet, for instance, projects an annual loss of between $20 million and $120 million, whereas some analysts had expected it to swing back to profitability.

Similarly, Anne Zieger of Fierce Healthcare looks at the same trends and suggests that any improvements are highly unlikely to be sustainable:

OK, how about the improved hospital results that came out in the last several days? HCA, for example, saw a 21.6 percent growth in net income for the second quarter on revenue growth of 3.7 percent, despite falling surgical volumes and flat admissions. Sounds great. But it’s hard for me to imagine that numbers that looked good despite flat admissions and falling numbers of surgeries will stay that way for long. Oh, and as for the other thing touted by Wall Street analysts–that HCA managed to set aside almost enough money to pay its bad debts? Sounds nice, too, but what about the fact that HCA’s debt rates continue to rise? That kind of drain isn’t sustainable, either.

I remain squarely agnostic. Since I see hospitals and insurers as locked in a death struggle over a shrinking market, I’m naturally inclined to think that no one is likely to build a lasting advantage unless they somehow succeed in changing the rules of the game. And since the healthcare market is so Byzantine, the ability of any individual hospital or health insurer to do so is highly circumscribed.

Which is why I’ve long suspected that the only real impetus for fundamental change will come from government action — likely spurred by some sort of catastrophic collapse in the commercial-insurance market. But more on that in a future post.

The news here is a few weeks old, but I was still struck by the fact that large insurers are apparently starting to crack down on the overuse of medical imaging. According to Bloomberg, companies like WellPoint and Magellan Health Services believe that expensive and unnecessary CT and MRI scans cost them roughly $30 billion a year.

These scans cost roughly $2,000 a pop and, at least in the case of CT (computerized tomography) scans, can subject patients to serious levels of radiation. But they’re giant moneymakers for hospitals and specialty clinics, which often heavily advertise the high-tech scanners in order to cultivate a “state-of-the-art” image among potential patients. Of course, the machines are also expensive, which creates incentives for doctors to use them as frequently as possible, and then stick insurers or the federal government with the bill.

There’s a reason, after all, that radiologists frequently top the lists of best-compensated medical specialties.

The insurers, however, have had enough, and are now increasingly using “radiology benefit managers” to preauthorize such scans:

“We’ve seen radiology growth trends in the 20 percent-plus range drop to the low single digits” when pre-screening is used in a health plan, said Wayne DeVeydt, WellPoint’s chief financial officer, in a telephone interview last week. Prior authorization “is going to be a huge growth area” for insurers, he said….

Partly because of expanded pre-screening, growth in the number of procedures using computed tomography, or CT scans, fell to 8.2 percent annually on average after 2003, down from 14 percent a year before that, said Lorna Young of IMV, a market research firm based in Greenbelt, Maryland, in a telephone interview.

In addition to requiring advance approval, screeners are negotiating discounted fees for scans, requiring imaging facilities to win accreditation and guiding consumers to cheaper test centers….

By using pre-screening, UnitedHealth cut the growth in imaging costs for certain medical plans to about 7 percent in 2007 from 12 to 18 percent annually previously, according to Sam Ho, a senior medical officer with the company. That saved $65 million, he said.

Almost $100 billion a year is spent on imaging in the U.S. and that may double by 2013 unless costs are reined in, according to the report today by America’s Health Insurance Plans.

Of course, as typically happens with such cost-shifting schemes, there will eventually be a backlash. Christopher Ullrich, a radiologist who heads the managed-care committee for the American College of Radiology, previews it for us:

“You’re going to find patients with a headache who turned out to have an aneurysm or who had abdominal pain that wasn’t investigated and turned out to be a tumor,” said Ullrich, a radiologist in Charlotte, North Carolina, in a July 25 telephone interview. It is “hard to live with arbitrary denials and a system with huge administrative burdens with no reimbursement for providing that.”

Oddly, Ullrich apparently had nothing quotable to say about the financial incentives that drive doctors and hospitals to overuse the technology.

But I’m not pretending this is an easy question. The basic problem with advanced medical technology is that while it often can help some people at least some of the time, the cost of deploying it widely enough to be useful in those cases is quickly bankrupting the system. So far, at least, figuring out a proper balance there appears beyond the capabilities of the parties in our whack-a-mole healthcare system.

Update: A new Government Accountability Office report finds that — surprise, surprise — Florida led the nation in medical-imaging costs in 2006, with Medicare recipients there averaging three scans a year compared to a nationwide average of two.

(Hat tip: Gary Schwitzer)

Hand this off to the Bureau of Questionable Ideas: Columbia Pacific, a Seattle investment firm has raised $325 million to bring “U.S.-style healthcare” to nations such as Malaysia, India, Indonesia and Vietnam. The fund’s current focus is India, where it hopes to own more than 26 facilities by the end of the decade, up from five right now.

Apparently the idea is to import U.S.-style ideas about healthcare management to Asian nations. Sounds great, until you recall that U.S. healthcare is among the most wasteful in the world, with unnecessary and often dangerous overtreatment alone accounting for up to a third of all healthcare costs. If these are the sorts of ideas Columbia Asia, the firm’s Malaysia-based unit, plans on exporting, then Indians had better brace themselves.

The Seattle Times story is long on context and short on detail as to exactly what Columbia Asia is doing, although it looks like the company is opening relatively small hospitals and extended-care facilities designed to appeal to a burgeoning upper and upper-middle class in fast-growing Asian nations:

Columbia Asia’s operations began in 1994, when Chairman Rick Evans — who previously worked for Baty — opened an extended-care facility in Malaysia, then one of Southeast Asia’s blossoming “Tiger Economies.” The idea was to adapt business methods honed in U.S. health-care management to private hospitals serving the region’s budding middle class.

Now India, with its booming economy and giant population, is looking more like the land of opportunity.

“It took me one day of driving around Bangalore, India, to see the opportunity was unbelievable,” Evans said. The southeastern city is India’s Silicon Valley, housing Microsoft’s research campus, among others. Middle-income households there were “underserved,” he said.

True to the path blazed by many U.S. hospital chains, Columbia Asia intends to cater primarily to well-heeled patients, particularly those who are opting out of public healthcare.

Facilities are small: a typical hospital has about 65 adult beds, costing about $15 million to $16 million to build. It sees about 8,000 patients a month, and brings in about $1 million in monthly revenue, said Evans.

The company’s growth is in part driven by the expansion of private health insurance in Asia. About 70 percent of the company’s revenues come from insurer payments, Evans said.

Now, this may end up being a fine investment opportunity; pampering the wealthy is a tried-and-true business model. Still, depending on exactly what parts of the U.S. healthcare experience Columbia Asia transplants, it may well be selling its customers a bill of goods. If the last several decades of serious study has shown us anything, it’s that beyond a certain point, spending more on healthcare doesn’t make people better, and it often makes them worse.

The equation might be different here if Columbia intended to expand medical access for the vast number of Asians who aren’t rolling in newfound wealth — but, of course, there’s no money in that. So instead a certain class of Indians, Malaysians, etc., are most probably about to be introduced to the marvels of unnecessary medical imaging, prescription-drug overuse, unproven surgical procedures and the like. You have to wish the upper-crust patrons of Columbia’s ritzy new facilities the best of luck, as they’re likely to need it.

(Hat tip: Fierce Healthcare)

The U.S. healthcare system is sometimes best thought of as a three-way tug-of-war between payers (private insurers and the feds), providers (hospitals and doctors) and suppliers (drug and medical-device makers). No, patients don’t really figure into this analogy — at best, they’re trussed up in the middle somewhere.

Most big changes in the system result when one of the three players temporarily seizes the upper hand. In the mid-1990s, for instance, managed-care companies were successful at forcing providers to accept all manner of treatment limitations, and thus held down costs and profited enormously while hospitals and doctors suffered. The pharmaceutical industry is just coming off a similar winning streak, during which it raised prices with impunity thanks to ad-fueled consumer demand for many of its drugs.

These days, with profits and, in many cases, membership drooping at many insurers, Joe Paduda of Managed Care Matters suggests that perhaps hospitals have once again managed to assert their dominance. I’m not entirely convinced, but it’s an interesting argument. For instance:

• Second-quarter profits rose far more sharply than revenues at HCA, the nation’s largest hospital chain, suggesting some serious internal cost control while the company sold more lucrative services;
• Universal Health Services posted a similar jump in profits relative to revenues, although it’s a much smaller hospital chain;
• Health Management Associates, an operator of acute-care hospitals, eked out a 4.1 percent increase in profit despite the fact that it treated fewer patients;
• Tenet Healthcare likewise narrowed its losses and saw revenue rise 7.5 percent on a paltry 1.9 percent increase in patient volume, much of that from Medicare and Medicaid — not known for being generous payers.

All this suggests to Joe that the big hospital chains have — somehow — managed to find a way to shift their costs onto insurers. This could conceivably involve a shift to more lucrative treatments, a greater volume of procedures (i.e., if doctors do more things to patients, it doesn’t matter as much if you have fewer patients), or simply better negotiating leverage resulting in lower discounts offered to big health plans.

And maybe that’s true. For instance, iIt’s worth noting that one of Joe’s commenters argues that manage-care companies used to employ crack negotiators, but have since stopped paying them as well, with the result that many now work for hospitals. On the other hand, it’s only one quarter of data, so I’d want to see more before I really begin to believe that any of this is true.

On top of that, there’s the fact that broader trends in the healthcare industry spell real trouble for hospitals as well. As I wrote back in May:

WellPoint and other major insurers clearly intend to bolster their sagging businesses by raising health-insurance premiums. As insurance grows more expensive for employers, many are likely to scale back or drop coverage. That means hospitals will end up treating a greater number of underinsured or uninsured patients, leading to more bad debt, more aggressive collections procedures, and in some cases, draconian measures such as forcing patients to pay in advance for cancer care and other expensive treatments (along with the resulting bad PR).

All of which suggests, at best, another round of contraction and consolidation among both insurers and hospitals, as they struggle to shift rising healthcare costs onto consumers and businesses that are increasingly unable to pay for them. At worst, it could mean the beginning of a death spiral for the byzantine and inefficient U.S. healthcare system. Nothing seems more likely to precipitate a general healthcare crisis than the continued collapse of employer-provided health insurance, and it’s hard to see how that ends short of some form of dramatic government takeover that could shake all three industries to the core — and possibly even legislate health insurers out of business.

Times just aren’t getting any better for nonprofit Blue Cross and Blue Shield health plans. Not only has operating income hit the skids, but pressures to merge or convert to for-profit status keep rising. Consider:

• In mid-August, Horizon Blue Cross/Blue Shield of New Jersey applied to become a for-profit organization. The 76-year-old health plan, the state’s largest health insurer, said the change would help it compete with other publicly held insurers by raising money through equity sales.
• Meanwhile, two Pennsylvania Blues, Highmark and Independence Blue Cross, filed with the state to merge their operations. The combined organization would cut between 745 and 1,200 jobs, while also raising compensation to top executives who would essentially divide up their current duties by as much as $4.2 million.
• These moves are just part of what is expected to be a new wave of nonprofit health-plan merger/conversions similar to that which swept the industry in the 1990s. In particular, converted plans are likely to become attractive acquisition targets for giants like WellPoint and UnitedHealth Group that are currently having trouble holding onto their existing plan membership.

Why is all this happening now? The organizations themselves claim they need to get bigger or tap public markets just to keep up. Horizon, for instance, argues that needed investment in information technology and quality initiatives will exceed its annual budget by almost a factor of two. Similarly, Independence and Highmark insist that they have to get bigger to compete for corporate accounts against other insurance giants that can offer to handle employee coverage across vast geographies.

There are other advantages, too, as the WSJ notes:

More than a decade ago, health insurers operated largely on a state-by-state basis, or in regions within states, Mr. Field noted. Now, the remaining smaller players must compete against major operations such as WellPoint, UnitedHealthGroup Inc., Humana Inc., Aetna Inc. and the nonprofit Kaiser health plans, he said.

Mr. Field considers WellPoint and Humana the most likely purchasers of Blue Cross Blue Shield plans. A Humana spokesman didn’t comment Friday.

In addition to presenting acquisition opportunities, conversions can benefit publicly traded managed-care companies in another way. Nonprofits are required to keep cash surpluses under certain levels, and that can translate into lower pricing that places competitive pressures on for-profit plans.

It’s also true, of course, that larger insurers have more leverage for negotiating discounts with hospitals and doctors. In today’s whack-a-mole healthcare system, that’s really the name of the game.

Since American Medical News was kind enough to compile the data (subscription required), I thought I’d offer up this quick pair of tables on the nation’s largest nonprofit and for-profit health insurers. These accompanied an article about the proposed merger of the Blues plans Highmark and Independence Blue Cross, and so treats them as a single entity.

Largest nonprofit health plans, by membership (2007)

Largest for-profit and nonprofit insurers, by annual revenue (2007)

Free-market medicine in the form of “consumer-directed healthcare” — typically involving health plans with high deductibles –has been tough for many people to swallow. But insurers aren’t happy with employers that have tried to limit the financial risks for their employers.

The basic idea of high-deductible plans, which usually force people to pay several thousand dollars before coverage kicks in, is that people will pay more attention to cost and quality of healthcare when they’re paying the bills. These plans, however, haven’t exactly proven popular with workers, despite the lower monthly premiums, for exactly the reason you’d think — they saddle individuals with more of their own healthcare costs, and encourage many people to avoid doctors even when they shouldn’t.

So some businesses have tried to take the edge off by offering employees help with high deductible costs, sometimes via “wrap-around” self-insurance policies. Insurance brokers, who understand how much people dislike high-deductible plans, have played a big role in pushing these hybrid policies.

As far as insurers are concerned, however, the financial risk to the insured is the whole point, since it discourages “overuse” of medical services. In California over the past several month, health plans such as Blue Shield, Health Net, Kaiser Permanente and Anthem Blue Cross (a unit of WellPoint) have all threatened brokers who combine high-deductible plans with other policies with termination of sales contracts and commissions, the Sacramento Business Journal reports.

Insurers who sell high-deductible plans directly to employers have also begun asking those companies to sign statements in which they promise not to combine them with deductible assistance or similar policies. The catch: Failing to sign — or violating that pledge — could cost a business its health coverage.

As with so many things in healthcare, the business logic is sound: Insurers stand to lose money if high deductibles aren’t scaring their customers away from the doctor. (Actually, their interest lies in making sure as few people as possible exceed their deductible, which is more likely if they’re not paying for every appointment out of their own pocket.)

But it’s also out of whack with what insurers are technically supposed to be doing — that is, helping keep their members healthy — since the evidence is pretty strong that high deductibles mostly cause people to “self-ration” care that might help keep them healthy in the long run.

Update: Vijay Goel of Consumer-focused Health Care recently noted a related oddity, in which Blue Cross Blue Shield of Minnesota appears to be hiking premiums for high-deductible plans every bit as quickly as for its other policies, despite the fact that costs are risking much more slowly in the high-deductible plans.

(Hat tip: Fierce Healthcare)

Image via Flickr user Otto Pyykkö, CC 2.0