The gurney ride, lying flat on his back staring at the ceiling lights as they pass overhead, halts. “Good morning,” a voice intones. “I’m going to be taking care of you today. Did they explain what we’ll be doing?” The patient tells the anesthesiologist his name and what he’s here for. The gurney moves again, stopping this time beneath bright lights. Behind a lime-green mask, a surgeon repeats the information to a cluster of nurses and others. The patient listens before drifting into the soft darkness of anesthesia. Preparations continue, but before the surgeon picks up a scalpel, he calls another huddle and, like a mantra, goes over the patient’s name and other details again.
When the operation ends, nurses collect and count scalpels and other items. “We set up the tray and label it based on the surgeon’s preferences,” Brian Goldstein, one of the doctors who created the ritual playing out in an operating room on the second floor of UNC Hospitals in Chapel Hill, would explain later. “When we finish, we know what’s supposed to be there.” Before the incision is closed, a nurse passes a wand that resembles an unstrung tennis racket over the patient. If a sponge or compress, blood-soaked and easily overlooked, has been left inside, a nearby console will beep. Embedded radio-frequency microchips ensure all are removed.
In another wing of this sprawling complex, behind closed doors in secrecy more common in military than medical operations, there’s another reason hospitals are going to unprecedented lengths to improve patient care and safety. Their finances are at stake. Insurers are negotiating how to reward them for getting people well quicker and with fewer complications. A decade ago, contracts were mostly battles of who was the biggest, hospital or insurer, and who needed the other more at the moment financially. Asking few, if any, questions, insurers forked over payments, then passed the costs along to premium payers.
“We have understood for some time that the traditional fee-for-service system is unsustainable,” says Joan Thomas, president of Managed Health Resources Inc., the negotiating arm of Charlotte-based Carolinas HealthCare System, the state’s largest hospital network. “For many years, even before health-care reform, some of the changes were really accelerating.” She and her organization handle several hundred contracts a year for the hospitals the system owns and those it manages for others.
Among the latter is Greensboro-based Cone Health Inc., with its flagship, 536-bed Moses H. Cone Memorial Hospital. CEO Tim Rice agrees with Thomas, but he confronts the harsh reality that faces administrators in the pay-for-performance era. Better care is cheaper in the long run, but cutting lengths of stay, treating more patients outside the hospital, reducing readmission rates, eliminating redundant tests and other such measures shrink revenue. Making the transition is “the ugly phase where you’re leaping from one cliff to another.”
“We’re caught between two worlds,” says Jarvis Leigh, network marketing vice president and chief negotiator for Hartford, Conn.-based Aetna Inc., which covers about 300,000 North Carolinians at nearly 120 hospitals. “One is old-world contracting, in which we’re mainly looking at ways to lower our costs year over year and hospital CEOs are looking at ways to increase their revenues year over year. The other is, hospital CFOs — chief financial officers — are loath to take some unnecessary services out of the system because their revenues are tied to them. We need to quickly transition to a model in which they can get rewarded for performance, because that time is very dangerous for them.” Garland Scott calls the transition “the core of the challenge we face today.” He’s the Greensboro-based CEO of UnitedHealthcare of North Carolina and South Carolina. With about 900,000 Tar Heel members, the state’s second-largest health insurer is responding with models such as bundling — essentially turnkey pricing for set medical procedures — that reward efficiency and quality of care.
The consequences are huge. The Menlo Park, Calif.-based Kaiser Family Foundation estimates that medical care in North Carolina consumes about $6,500 a year per person, though fewer than one in 20 pay that out of pocket. Medicare and Medicaid pick up 43% and, under the Affordable Care Act of 2010, have started penalizing hospitals for their lapses. “Medicare, of course has been the big driver,” Goldstein says. As UNC Hospitals’ chief operating officer and executive vice president, he oversees a $1 billion annual budget. Before that, the internist ran the patient-safety and performance divisions. “Is this pay-for-performance? Indeed, 1% of our Medicare revenue is at risk if hospitals don’t meet quality standards, and that’ll increase by 2015 to 3%.”
Employers sponsor 49% of the state’s medical insurance plans, and their premiums have more than doubled since 2000. They have muscle and aren’t reluctant to use it, pressuring insurers such as Aetna, UnitedHealthcare and Chapel Hill-based Blue Cross and Blue Shield of North Carolina Inc. to hold down hospital costs. “They’re writing the tab, so they’re looking to us to drive cost improvement, primarily by improving quality of care,” Leigh says. “The best way to do that is to make it an even larger component of contract negotiations.” Kaiser estimates that about $25 billion of $70 billion a year spent on health care in the state goes to hospitals, and while both sides talk quality, gauging how much it’s worth is sticky.
At UNC Hospitals, doctors, nurses and technicians have adopted techniques that have cut bloodstream infections from venous catheters 90% in just over a decade. But administrators and Aetna reached a stalemate in late 2011 on how much such progress was worth. The standoff lasted more than a year, and Aetna patients at the system’s Chapel Hill flagship and its other hospitals, such as Rex in Raleigh and Chatham in Siler City, had to go elsewhere or pay higher out-of-network fees. UNC argued that it deserved increases of 16% or more. That outpaced medical inflation, Aetna said. Neither will reveal what the contract that finally was signed in November provides, but both sides agree that by the time the next contract comes due in three years, quality of care will be a major issue.
In Rocky Mount, Nash General Hospital has 280 beds in a modern building of tan brick. The hospital prides itself on minimally invasive procedures, using laparoscopic instruments and robotic surgery to repair organs, but Blue Cross knows Nash General is good at other things too. Among them: bariatric surgery to help the obese. Covering more than half the 9.7 million people living in the state, the insurer amasses mountains of claims data, from which once undetectable nuggets glimmer. Technology has become a valuable tool to dig it out. Wayne Memorial Hospital in Goldsboro isn’t a household name in most of the state, but when Blue Cross probes claims, it finds that hospital gets better-than-usual outcomes for expensive joint replacements. A hospital typically receives about $20,000, not counting surgeon’s and other fees, for a total hip replacement.
Data mining has enabled Blue Cross to develop Blue Distinction Centers. “The designation,” says Mark Werner, director of network management, “is based on evidence-based selection criteria established in collaboration with medical specialists and medical societies. In every contract-renewal discussion, quality is an important factor, and the industry trend is toward incentives based on quality measures.” The company negotiates about 25 hospital contracts a year. Adds Leigh, “At this point, Aetna is about as much a technology company as we are an insurance company.” UnitedHealthcare, Scott says, has similar programs.
When they face insurers across negotiating tables, hospitals come armed with their own data. Carolinas HealthCare, Thomas says, has more than 3 million patients on its rolls. “We have a wealth of knowledge in medical records. An insurance company might know that a patient got five lab tests, but it wouldn’t know the results. We would and might know that the patient needs to be under case management.” For example, coordinating a diabetic’s care between endocrinologists, dieticians and therapists in and out of the hospital.
Quality is a fuzzy concept, but hospitals are able to put hard facts on the table. If a patient arrives at UNC Hospitals after a heart attack, accepted practice is that he should get fibrinolytic therapy — clot-busting drugs — within 30 minutes. That’s called a process measure, equivalent to what industry calls best practices. Such measures can be tallied for negotiating purposes in addition to setting guidelines that help doctors and nurses surmount the vagaries of human bodies. “Health care is high-tech,” Goldstein says, “and the more we can do for people — if we’re not careful — the greater the potential there is to harm. We look at processes and in some cases narrow the variation of things we do repeatedly. For example, if data shows someone having a certain kind of surgery will benefit from getting an antibiotic within an hour of the surgery, we want to make sure that 100% of the time they’re getting it.”
Carolinas HealthCare packs other negotiating ammunition, Thomas says. She calls it population-health data — how well hospitals, doctors and clinics keep insurance companies’ customers healthy. “An example might be the percentage of female patients over age 40 under the care of our primary-care network who’ve had a screening mammogram in the past 24 months. That might be a patient who’s never been to a hospital, but we’re trying to ensure problems are resolved early and in the most cost-effective manner.”
Hospitals and insurers also rely on outside sources, principally the federal Centers for Medicare & Medicaid Services’ Hospital Compare data, which calculates statistics from more than 4,000 hospitals nationwide, such as how frequently patients get infections from unsterile practices. Hospital Compare data is a prominent part of most independent hospital ratings, including Business North Carolina’s, which weights such factors as death and readmission rates for heart-attack victims. The magazine’s system also includes patient-satisfaction ratings and how hospitals fare when judged by outside organizations such as Washington, D.C.-based Leapfrog Group, a consortium of employers that includes General Motors Corp., Boeing Co. and FedEx Corp. In excess of 4,000 calculations go into the BNC ranking of more than 100 acute-care hospitals in the state. But even at that, hospitals and insurers still take such lists with a grain of salt.
“Obviously, the ones that do well are proud,” says Linwood Jones, general counsel to the 130-member North Carolina Hospital Association. “But the whole area of quality measurement is an evolving science. The people who do these kinds of things tend to put a different weight on each piece of their analysis.” The most common complaint? “The greatest challenge is adequately considering how sick the patients are,” says Goldstein, whose hospital gets referrals sometimes considered hopeless by others. “If we’re taking care of a sicker population, it’s not a fair comparison. Readmission data is also a good example. We have a huge cancer hospital, and if a patient comes back for chemotherapy within 30 days, we get punished because the insurer considers that a readmission.”
Clearly, rankings don’t tell a complete story. For instance, hospitals with too few cases to measure in a certain procedure get zero points for it, though they possibly provide excellent overall care. Essentially, rankings pinpoint the best hospitals, but they become less meaningful the farther you go down.After all, accreditation and certification of hospitals mean that genuinely abysmal ones have long since been shuttered.
Hospitals and insurers have inherently competing financial interests, but quality-based contracts provide opportunities for them to work more like partners. Consider the $810 MRI. That’s what an insurer typically would pay a Charlotte hospital when an emergency-room visitor gets an abdominal scan. The doctor there, however, might not know the patient had one a day or month earlier at an outpatient clinic. He might be referred to a gastroenterologist who orders another, not knowing he’d already had two. Each would not only add cost but delay care and endanger the patient.
“We have the ability to connect medical records systems to take out duplicate services quite readily,” says Leigh, the Aetna negotiator. “An MRI in a clinically integrated hospital ER doesn’t have to be repeated when the patient is referred to the orthopedist’s office.” Quality clauses also encourage hospitals and doctors to steer patients into appropriate care, even if it’s not in a hospital. “We’re having conversations with some of the largest health-care systems in the Carolinas looking at metrics to achieve this. Hospitals are asking us what we’ll pay at ambulatory surgery centers, home health agencies and other nonhospital settings that they could guide patients to at the right point in the continuum of care. Under the old model, they’d just keep them in the hospital.”
Scott says UnitedHealthcare’s claims data might show a hospital has an inordinate number of admissions through its emergency room, which might indicate several things the hospital hasn’t noticed, including lapses in primary care, allowing illnesses to become acute or limited hours at its clinics. Negotiating with insurers for quality-based rates prompts Carolinas HealthCare to look more closely at itself, the nation’s second-largest public hospital system. “We do a lot of publicly reported quality metrics,” Thomas says, “but we also track our own internal metrics, partly because they’re more real-time and updated.” One result, she says, is the system’s public Quality Report Card, based on Medicare’s Hospital Compare data as well as more-current internal measurements of such statistics as how many heart-attack patients survive and progress in eliminating falls and other accidents by patients. “The bigger picture for us is, if we put patients first and do our absolute best, we believe financing trends will follow what’s best for the patient.”
In the meantime, quality-based contracts will continue forcing hospitals and insurers to work more closely. Leigh sits across the table from Thomas. “We know,” he says, “we have to make the transition for a softer landing between the old world and the new.”
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