Furthermore, this bill will add more paperwork and red tape, and that increases hospital costs. Every time the government does something to control costs, it causes more red tape. Hospitals have to spend time and energy to comply, which means less money for direct patient care.
Q: When you were a professor, you taught logic to college students. Do the healthcare bills have some kind of logic to them?
DD: The healthcare legislation has virtually no logic at all. It’s all part of the political process. Usually a piece of legislation is 95 percent politics and 5 percent policy, but these bills are 99 percent politics and 1 percent policy.
Q: What areas of the reforms are you most concerned about?
DD: First, the proposal to penalize hospitals for readmissions of patients within 30 days is not a good idea. For instance, a discharged patient is told to stay off sugar, then they go home and have ice cream and cake, and five days later they’re back in the hospital. Under the current wording of the bills, the hospital wouldn’t get paid for that patient. The readmission proposal is a penalty-oriented system that has nothing to do with changing the underlying behaviors that cause readmissions. We’re trying to get the language changed.
Second, the House bill contains a “value index” to reward ostensibly more “efficient” or “low cost” providers. The provision is based on studies of geographic variations in healthcare costs that have caught a great deal of attention but are still not fully understood. The legislation would shift Medicare funding from seven states, including New York, Florida and California, to 17 rural states. Miami-Dade County would be hit the hardest by this, and Los Angeles County would be hit the hardest in California.
Q: Can’t something good come out of this legislation? In the 1980s, hospitals were very nervous about the DRG system but they adapted to it.
DD: The DRG system changed incentives in the reimbursement system. As a result, hospitals reacted and came up with systems and methodologies that worked with DRGs. This healthcare bill does not try to change incentives.
The only thing in the bill that comes close is the pilot projects on bundling payments for inpatient and outpatient services. That shows some promise. Rather than penalizing hospitals, as a readmission policy would do, bundling provides a positive incentive. Hospitals that can align inpatient and outpatient care with other providers would be rewarded.
Q: To deal with bundled payments, hospitals first have to integrate services with physicians and other providers. Does California’s ban on the corporate practice of medicine get in the way of that?
DD: Yes. Several states have laws against the corporate practice of medicine, but California’s is the most restrictive. Setting up a medical foundation for physicians is one way of dealing with this. But even then, the affiliated doctors have to be kept at arm’s length. They cannot be employed by the hospital, which makes it more of a challenge to fully integrate them.
Q: Back in the 1990s, California hospitals were seen as a model for the rest of the nation because they worked with capitated payments. Would that experience make it easier now to deal with bundled payments?
DD: The capitation era is pretty much gone, even in California. Virtually every hospital in the state has gotten out of capitation. Capitation is still used by Kaiser, by physicians in a few remaining independent practice associations and by about half a dozen California hospitals, which derive 30-40 percent of their reimbursements from capitated contracts. But that’s about it.
Capitation and bundling are similar but not the same. Both try to present a global payment, but capitation is a flat payment, per member per month, to the provider, covering all the services that the patient needs. Bundling, on the other hand, is a payment for a specific case. But both systems have the effect of aligning inpatient with outpatient care.
Q: How have things changed for hospitals since you became CEO of the California Healthcare Association in 1985?
DD: One of the most disappointing changes is a decline in government support of healthcare services. Last year, California hospitals lost $11.5 billion in treating government-covered patients and the uninsured, out of total expenses of $65 million. The biggest loss was due to Medi-Cal, California’s Medicaid program. Hospitals provided care to people and were not fully paid for it. This meant that hospitals had to cost-shift to private payors. It is estimated that California health insurance premiums are 20 percent higher than they would otherwise be because of this cost shift.
And even as California hospitals lose funding, they are expected to spend more on unfunded mandates, such as state requirements to retrofit hospitals for earthquakes. This mandate alone will cost California hospitals $110 billion. Hospitals also have new challenges, such as dealing with an obesity epidemic and protecting against the threat of the H1N1 virus.
An emerging problem is covering the care of undocumented residents. About a dozen states, including California, are impacted the most by this. There are 4 million undocumented residents in California alone. The federal ERISA law requires hospitals to stabilize patients irrespective of immigration status, but hospitals get virtually no money for treating undocumented aliens.
Q: How have California hospitals been affected by the recession?
DD: The recession has harmed hospitals here and all over the country in many ways. For example, many hospitals have had to cut back or eliminate community benefit services or postpone capital projects and replacement of equipment. Of course, hospitals’ financial state is generally better than some other segments of the economy. While some people are in a depression, I’d say hospitals are in a recession. It’s all relative.
The only positive outcome to the recession is a temporary reprieve on our healthcare workforce shortage. Retired nurses are going back into the labor force. Nurses with part-time jobs are switching to full-time work. But it’s a temporary reprieve that will last maybe 15 to 18 months, then we’ll be back to the shortage.
Hospitals won’t be able to solve the workforce issue because it involves state and private spending on education. In California, we don’t have the educational structure to train the people we need. This state has depended on the in-migration of healthcare professionals trained in other states and that well is drying up.
Learn more about California Hospital Association.
