There is an underlying assumption that health care institutions are interested in maximizing the health and welfare of their communities and individual patients. Hospitals, pharma, and all of the health care delivery system providers claim to be committed to improving our health. How far does the commitment to the purported goal go? Unfortunately the economic realities of a sick care model (reimbursement based on treatment of a underlying medical conditions or symptoms) is that more emergency room visits, surgeries, occupied beds, imaging tests and labs means more revenue for providers and institutions. Understanding our economic incentives can explain ongoing failures and give insights into new strategies. (1) Crafting public health policy measures must account for inherent financial incentives to succeed.
The willingness of the medical industrial complex to achieve the goal of maximizing societal wellness and adopt prevention strategies is profoundly conflicted. The following true anecdote highlights the stark reality of these conflicted goals that result in unfortunate decisions by health care systems. In a conversation with a health recruiter for a major community hospital, he recounted how his institution had purchased a highly successful primary care practice with a patient centered medical home model.
The acquired primary care group had a strong reputation in the community and was very profitable covering approximately 30,000 patients. The practice was highly efficient, used advanced care providers and had excellent patient and provider satisfaction. On the other hand the hospital had hundreds of physician employees who were less productive and had high turnover. The hospital employed physicians were losing money year after year. The intention of the hospital was to convert their existing practices to the new delivery model.
There was a concerted plan created to make the transition. Shortly after acquiring the practice, the following data was discovered by the Chief Financial Officer of the hospital. Because the patient centered practice allowed same day appointments, used preventative health practices and provided evidence based treatment, their patients had 28% fewer ER visits and 18% fewer hospital admissions than the employed physician practices. The analysis revealed a projected $14 million reduction in ER revenue and almost $74 million loss of inpatient revenue.
Once the administration identified the data, there was an immediate move to discontinue the transition of their employed physician practices to the new patient centered model. The physician practice leader was told to halt on any further incorporation of the new model because of the profound negative impact on the bottom line for the institution.
The anecdote highlights the elephant in the room. While some would find the institutional behavior shocking and unconscionable, the reality is most hospitals currently operate on very thin margins and are threatened by any loss of revenue. Most institutions would likely act similarly. All hospitals are currently trying to increase revenue by increasing profitable business such as ER visits, surgery and ancillary services while transactional reimbursement persists. The inherent conflict creates a paradox of goals: keep the community healthy and lose revenue or maintain the unhealthy current model but preserve the financial integrity of the institution. Most hospitals are treading water in the transition from fee for service to capitation or bundled payment. (2) I have had subsequent conversations with many health care sector executives who have shared identical stories where profits trump wellness.
Regardless of payment methodology, a wellness driven model threatens the status quo. There are those who believe that capitation will align incentives and solve the financial conflict. Unfortunately this is not true. The net effect of promoting wellness, through preventative care, results in less utilization of medical services, ultimately leading to downsizing; less use of ER services, surgery, and inpatient/outpatient care which ultimately lead to decreasing capitation rates. With decreasing use of services, the current institutions delivering care will need to be significantly downsized. Capitation is a race to the bottom.
Ultimately, hospitals will recognize this reality and make efforts to preserve current capitation rates to avoid inexorable shrinkage. Healthy patients mean no more sick care. The medical industrial complex cannot be expected to promote salutary health policies for the community or society at large if they view it as potentially causing tremendous downsizing or putting them out of business. Their focus, by their nature, is on sick care not wellness.
With the adoption of value based payments and their corresponding incentives, health systems spend enormous resources attempting to comply. At the same time, hospitals, consultants, software developers and lawyers attempt to "tweak" the system to maximize profitability. Hypothetically, if the federal government instituted a preventative healthcare program which over the course of five years would dramatically decrease disease and medical services utilization, with concomitant revenue loss, would major healthcare institutions, drug companies, ancillary service providers etc support it?
The economic bias of the medical industrial complex must be recognized. Solutions will need to address their concerns of downsizing. In order to effectively balance personal versus public good, we need to create a social imperative to fund prevention through education and public awareness marketing.
There are two initial strategies to move to a better model of care. First, engaging patients, who ultimately wish to remain healthy and not spend any resources on health care, other than prevention, seems like an excellent long term strategy. It has been clearly established and repeatedly taught that 70 to 80% of overall wellness is related to the social determinants of health. (3) These include health literacy, diet, exercise, housing, unhealthy behaviors like smoking and alcohol use, environmental and genetic factors. Many of these factors are indirect measures of poverty. The vast majority of resources spent are for sickness and disease rather than prevention. While this has a positive impact on those sick individuals currently in the system, it diverts resources away from prevention. Prevention strategies and adoption of health policies to address the social determinants of health, create long term global benefit; sick care addresses the current needs of the individual. The question remains unanswered as to what the proper allocation of resources is to maximize citizen health and improve overall well-being.
Second, free resources to address preventative health goals can be achieved. For many years studies have shown that 30% of the care we provide is unnecessary. (4) Policies should be adopted which limit reimbursement for diagnostic and therapeutic activities that are not evidence based and have not shown outcomes benefit.
Outcomes studies research on preventative health measures can maximize return on investment. Recognizing that we have limited resources, there should be a concerted effort to set a budget and prioritize spending. Delineating a core of essential health benefits with the goal of maximizing population health would be beneficial. Resources can then be allocated more equitably and efficiently.
An excellent vehicle to explore these above two preventative health strategies is with self insured employers who cover approximately 40% of the market. They have aligned interests with consumers to stay healthy and never use health care services other than for prevention. Because self insured employers view healthcare as a cost center not a revenue center, they are incentivized to keep employees healthy and productive.
By recognizing the conflicted goals of a medical industrial complex which profits on sick care not wellness, regardless of payment methodology, we can craft policies which will ultimately reduce the provision of disease treatment and redirect resources to preventative measures. We need to encourage policies that reduce ER visits, surgeries, hospitalizations and ancillary tests. We need to refocus our efforts on wellness rather than sick care.
Copyright Nicolas Argy, MD, JD 2016
- Reinhardt, Uwe E. Health Care Price Transparency and Economic Theory. JAMA 312 no. 16: 1642-1643
- David Blumenthal, M.D., M.P.P., Melinda Abrams, M.S., and Rachel Nuzum, M.P.H. N Engl J Med 2015; 372:2451-2458
- Tarlov A. Social determinants of health: the sociobiological translation. In: Blane D, Brunner E, Wilkinson R, eds. Health and social organization. London, Routledge, 1996:71-93.
- Reflections on Geographic Variations in U.S. Health Care Jonathan Skinner, Elliott S. Fisher, MD, MPH March 31, 2010 (updated May 12, 2010)