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Tuesday, August 20, 2013

Teasing out hospital budgets, especially how subsidizing doctors’ salaries can be financially sound

I have been doing locum tenens work as a hospitalist for nearly two years. One of my reasons for doing this is that the practice of medicine in the US is very interesting, and by working in very different places I get to see how things work and don't work, and make up cool theories. I have time to read and listen to people and have become curious about several true things which don’t seem to fit together. 
  1. Hospitals are paid an absurd amount of money to take care of patients.
  2. Small hospitals can barely survive financially.
  3. Small hospitals, rural ones with 25 beds or fewer (critical access hospitals) are paid more generously by Medicare than large hospitals.
  4. Hospitals that employ physicians subsidize them above the money they bring in as professional fees, to the tune of about $100,000 per year per physician.
  5. Hospitalists and hospitalist programs are expensive, in the range of 1-2 million dollars per year for a 25 bed hospital.
  6. Hospitals are willing, even happy, to start hospitalist programs.
  7. Hospitals have a slim enough margin (net income divided by total revenues) that changes in payment schemes have resulted (in times past) in the financial collapse of many of them, especially those that serve vulnerable populations.
So how can hospitals be so financially tenuous despite the fact that they are the largest cost center of the huge healthcare sector of our economy? Are they just whining?
    I have been eager to get my hands on a hospital budget or two to try to piece together how hospitals spend their money, to see if there is some obvious extravagance. I have asked to be allowed to see the budget of the hospital that I know best, and somehow e-mails were lost or it wasn’t very high on anyone’s to-do list or it was a deep dark secret or something. Finally I googled the right collection of words and found a link on the Washington Department of Health website where I could see quite a number of budgets for Washington State hospitals, even ones I knew something about.

    I learned various things, which should be taken with grains of salt, because these budgets were not very detailed and may have misrepresented the truth in some important way. Still. It is the best I can do, and is somewhat instructive. I looked at one 300 bed hospital and one 25 bed critical access hospital and this is what I learned.

    1. Hospitals have a profit margin of about 3-4%, which is a fact I have also read elsewhere. This is considered very small, and makes them vulnerable to small changes in payments.
    2. Hospitals bring in about $4000-$5000 per patient per day spent in the hospital. They also make a pretty big portion of their revenues by serving outpatients (doing things like blood tests and imaging and outpatient procedures.) Since most hospitals are paid according to diagnosis rather than length of stay, at least for a large proportion of patients, they make more money with less resources if the patients are discharged sooner rather than later. Small hospitals make more per patient per day than large ones.
    3. The majority of a hospital’s expenses are the salaries of the many people who work there, nurses, technicians, administrators, employed physicians, janitors, cooks etc. These costs generally go back into the communities they serve since people usually spend their money for food and rent and stuff they buy. 

    What I glean from this is that significant cutbacks in hospital expenses will probably involve cutting local jobs. That may not be a bad thing, in the big picture, especially if the workers are perpetuating an inefficient system, but hospitals are often the economic heart of their communities, so cutting jobs is not ideal. There may be some extravagance in some salaries and there may be waste elsewhere, but finding it will probably be laborious. 

    I also figured out how it might serve a hospital to have an expensive hospitalist program. If a hospital spends a million dollars to have a hospitalist program, with an average length of stay of about 4 days and a daily revenue per patient of about $5000, and a hospitalist program resulted in only 50-60 more patients being admitted to the hospital in a year, the program would pay for itself. This is certainly something that hospitalist programs can do, since primary doctors who don't fel comfortable taking care of their patients in the hospital are more likely, with hospitalist programs in place, to admit those patients to local hospitals rather than sending them further away. The same goes for other subsidized physicians. If a hospital has to pay each of 3 surgeons an extra $100,000 per year above their actual professional fees to work at that hospital, those surgeons would only have to bring in a total of 20 more patients to pay for their subsidy. Not having a viable surgery department in the hospital, on the other hand, would result in a tremendous loss of patient volume which would be financially devastating. 

    Because the budget information is so vague, I can’t tell how much of a hospitals’ costs are fixed and how much are based on volume of patients, which could significantly alter my calculations. Still, with very very round numbers, it does appear that attracting more patients, especially those whose insurance pays well, would easily make it worthwhile for a hospital to employ physicians in various capacities. Also reduction in lengths of stays for patients whose hospitalizations are paid according to their diagnoses improves hospitals' profitability.

    So how does this information fit in with my ongoing thesis that healthcare is too expensive because we do stupid things? Much of the volume of actual work done in a hospital is aimed at servicing the wasteful procedures and tests which we do because that is how we do things. If we truly want to reduce healthcare costs, we need to be thrifty in a way that saves hospitals as much money as is necessary to offset any reduction in payments. This is definitely possible, but we do need to be sensitive to details of cost efficiency and realize that spending less on healthcare, at least at the level of hospital services, will impact the folks who are employed by the hospital and the communities where they live.

    Monday, August 5, 2013

    Health care in Eastern Europe, Singapore and the US: How could pre-paid and concierge medicine help us be great?

    American healthcare is expensive. We pay lots of money for it and we have outcomes that we aren't proud of. We gnash our teeth at how terrible we are and look to other countries with lower costs for ideas on how to improve. I have been combining personal and second hand experience of countries that spend very little on healthcare with what I know about medicine in the US, and we really aren't entirely bad. In some ways we are outstanding.

    Singapore is a city-state comprised of 20 islands, near Malaysia, which began its modern prosperity when it was reinvented as a port by the British empire. It spends a tiny proportion of its GDP for healthcare, on the other hand, and ranks in the top 20 countries in the world in both life expectancy (15th) and infant mortality (1).

    So how do they do it? There are many factors that might enter into the overall health of the population of Singapore. One very striking thing about Singapore is how strict their laws are and how rigidly enforced. There are high taxes on both alcohol and cigarettes. Trial is by judge, not by jury and trafficking drugs is punishable by death, as is possession of large quantities of drugs of abuse. Trafficking in arms is a capital offense as is using a gun in the commission of most crimes. Cigarettes and alcohol are heavily taxed, and cigarette use is prohibited in most public areas, transgression punishable by rather high fines. Singapore provides universal healthcare by a combination of health savings accounts funded by salary deductions along with partially government funded health insurance for catastrophic costs and a government fund to pay for the care of patients who are unable to afford medical care or for those whose resources are inadequate. There are also private health insurance companies to pay for medical services not provided for by the government programs, which many people of means purchase. Actual medical services are subject to market forces since the majority of care is out of health savings accounts which are controlled by the individual patient. Medical care is very good, but is quite limited for those entirely dependent on government programs. Expensive care is not necessarily available, and the basic level of healthcare available to all citizens is not what most Americans would consider adequate, at least according to my experienced ex-pat source.

    Eastern European countries spend only a small proportion of their GDP on healthcare and they have poor outcomes, with rising rates of various preventable diseases and deaths. When the Soviet Union collapsed, the universal government funded health programs were suddenly unfunded and, although patients could choose their own doctors, those doctors didn't necessarily get paid and the technology they needed to function well gradually became unavailable. There is no good assurance of quality of care or of practitioners, and they make less than the national average salary. They depend on illegal payments and bribes to survive, and routinely receive money or gifts which are not acknowledged but are a vital part of the survival of healthcare providers. The quality of care is spotty and terrible, or so say my informants. Extremely brief doctor visits with next to no information imparted and no assurance of quality or accuracy is the way things roll.

    In the US we are very picky about who gets to be licensed to work as a doctor and there are many assurances of adequate education and skill as part of the process of becoming one. Doctors who practice medicine poorly or do things which can be considered unethical frequently lose their permission to practice medicine. Even though we sometimes get shoddy or inattentive care we expect more, which is not true in Eastern Europe. Doctors actually talk about how to delivery higher quality compassionate care and they  feel bad when their patients are dissatisfied. There is some terrible inconsiderate and stupid doctoring going on, especially in situations where doctors are overworked and burned out, but this is certainly not the rule and it is not an expected part of our culture. We sometimes become greedy and mercenary, but we have the decency, usually, to feel bad about it.

    So, what I'm saying is that I don't think we should trade our system in for Singapore's, even though they do get more healthcare for their money, or Eastern Europe's, even though there are more than enough doctors there to go around.

    We, here, have the luxury of a healthcare system that is lushly supported and heavily replete with technology and infrastructure. We have high standards which we sometimes live up to. We also do crazy things like spend lots of money on high end intensive care medicine for people who put no energy or resources into taking care of their bodies and who subsequently become disabled and despondent and live short miserable lives. We conversely spend no money on the basic healthcare that could keep the average poorly or uninsured middle class people from becoming very ill, and we have treatment routines that are poorly thought out in terms of value for the patient, leading to medical debt related bankruptcy. Still, every day I work I see miracles of effective, well thought out care delivered with respect and consideration. This sort of thing is not the exception, but more often the rule.

    I also see too many doctors losing their joy of practicing because they are encouraged to see too many patients and follow too many guidelines and spend scarce energy on the demands of the many third party payers.

    Just a few days ago I read an article about doctors who are moving to "cash only" practices, in which they are paid monthly by patients to be their primary doctor, sometimes with better access than patients whose medical care is paid by insurance. Even though a doctor who is paid by an insurance company is really working for his or her patient, a significant portion of the energy put into an encounter goes toward the insurance company, and the insurance company, be it Blue Cross or Medicare or Medicaid, always defines in some way what care we deliver. Not so in a "cash only" practice where there is no third party payer to please. Because there is no third party payer, the physician can afford to treat less patients, providing at least theoretically better care to each one. Critics argue that only the rich can afford this kind of care and that it will lead to primary care doctors being less productive in a time when primary care doctors are scarce. Since cash-only practice cuts out the very complex insurance billing piece, it is actually a less expensive way of delivering medicine, and there are many affordable cash-only practices, which are way cheaper than paying for health insurance. Someone with zero money can't afford this sort of thing, so it is not of help to patients receiving state funded healthcare. Still, it is affordable to middle class folks who often can't afford to pay health insurance premiums.

    Cash-only practices preserve the intimacy of the client-provider relationship, since it is that relationship only that determines what kind of medical care happens. To build a practice, physicians in this kind of a payment scheme have to deliver care that is valued by the patient.

    Combining a cash-only (also called "concierge" medicine, especially at the high end of cost and service) primary care model with a catastrophic type insurance coverage for hospital, procedure and emergency care could  help hold on to what is good in American medicine at the same time we tighten our belts and try to start delivering more cost efficient care. Primary care coverage, in the pre-paid, cash-only model, could be paid for out of health savings accounts, much like in Singapore, which could be compulsory and tax free. This would help control costs and improve quality as I've heard it does in Singapore. Most people who get good primary care rarely need expensive hospital based care so a catastrophic policy just for the expensive stuff still need not cost much. If there was some cost sharing for tests and procedures and hospitalization, there would be even more motivation to use primary care and healthy lifestyle based preventive strategies to keep from needing high tech and high end care.

    Since cash-only physicians get all of the payment associated with their care, rather than paying for an insurance industry which in turn sucks up their energy, they can survive with fewer patients on their panels. The patients they see can conceivable actually use less time since there is no need to spend time and energy on dealing with insurance. Dealing with insurance companies is, actually, a big energy and overhead sink. These doctors usually treat fewer patients because this practice model hasn't entirely caught on, so it's really kind of hard to have a large panel of patients. Since, however, treating more patients means making more money, I believe our quite human greed will make us as busy as we need to be. If cash-only practices really started to make an impact on medical care and clearly were a better way to practice medicine, government programs such as medicaid might give patients the opportunity to use their benefits to pay for care.

    After two years of looking at all kinds of permutations of medical communities I am more impressed with how desirable our medical system is, in terms of quality, though not affordability or access. Ideally we would not get rid of what we have that is excellent, but instead make it more available to everybody. We have such creative people in the field of healthcare and they have thought of so many ways to make their doctoring rewarding to all of us, as doctors and as patients. We should embrace some of these ideas when they are obviously good.