View from the Corner Office

The CEO of our hospital held a "Town Meeting" today to discuss the likely impact on our glorious institution of the health care reform legislation now taking shape in DC. (Oddly, nobody showed up with pictures of Auschwitz, or Obama with a Hitler mustache, and nobody screamed invective at her.) Although our interests and concerns about this are not precisely aligned, like me she is largely agnostic until we see the final bill, since, as she said a few times, "the devil is in the details."

Among the details that get very little public attention are those pertaining to the arcana of the hospital business. Academic medical centers like my employer have a triple mission -- clinical care, teaching, and research. Clinical care at hospitals depends heavily on Medicare funding, since Medicare beneficiaries are heavy consumers of hospital services. However, according to the hospital's accountants, Medicare does not pay the full cost, and Medicare patients are cross-subsidized from private insurance. We also have a children's hospital which has a high proportion of Medicaid patients, and Medicaid pays even less than Medicare.

On the other hand, Medicare pays extra to subsidize "teaching," which actually means the apprenticeships of residents and fellows. It seems odd that this costs extra, since these people are actually cheap labor. Most of their time is spent on patient care, and is reimbursed as such. You might think it would be more expensive for community hospitals that have to pay full-blown physicians to do the same work. Nevertheless hospital accountants everywhere agree that teaching hospitals need this extra dough to make the teaching function work as a business. I'm sorry, I can't actually explain this.

So-called "undergraduate" medical education -- i.e., the four years of medical school -- receives virtually no federal subsidy in the U.S. It's paid for out of tuition, so medical students typically graduate with about $200,000 in debt.

The hospital also claims that the clinical services subsidize the research function. This also seems odd from where I sit -- we have to finance 100% of what we do with grants, all of which come with so-called "indirect costs," that is a percentage that the hospital grabs to pay for its overhead. For federal grants, that's about 2/3 of the direct costs of a research project. It seems to me that we're subsidizing them. But again, I'm not an accountant.

Anyway, our CEO is all for increasing the percentage of people who have insurance, but she and the medical school dean are worried about the likelihood that expanded coverage is to be funded in part by constraining Medicare costs. Right now this consists mostly of eliminating the giveaway to insurance companies contained in the Medicare Advantage program, which is fine. But there are other moves afoot, one of which is to penalize hospitals for short-term re-admissions, another of which is to equalize reimbursement in higher and lower cost regions of the country, which would really hurt us.

There are a lot of moving parts here. Some people argue that the goal of preventing re-admissions may conflict somewhat with the goal of making hospital stays shorter. I'm not a real doctor, but I tend not to agree with that. Getting people out of the hospital sooner is usually good for them -- hospitals are dangerous and unhealthy places to be, especially if you are sick. Avoidable re-admissions usually happen, not because people are discharged too soon, but because discharge planning and follow-up are poor. People need to be counseled about medication adherence and other self-care issues, nurses and doctors need to make sure they know what to do and are able to do it, and people need to be seamlessly transitioned to after care services including outpatient physician visits, any needed home care, social work, etc. I think that reducing re-admissions is a legitimate quality objective and that the hospital can improve its bottom line by achieving it.

Nevertheless they are worried. Medicare is already cracking down on the practice of padding consultation codes (i.e., getting specialist services reimbursed at a higher rate than they should be) and making other efforts to squeeze hospitals. There's a lot of inside baseball going on with the hospitals and medical schools in DC right now, but they don't have the kind of money to spend on buying legislators that Big Pharma and Big Insurance have. So they are sweating bullets.

As I have said many times, what we really need is a radical reorganization of the way we provide and finance medical services. We can put institutions on a sound financial footing -- although they would have to shrink a bit, as there would be less money going to specialty services and procedures -- and improve the patient experience and outcomes, while saving money. But Congress isn't ready to go there. Instead, hospitals feel threatened with the death of a thousand cuts.