From Tom's Desk

The healthcare system is increasingly fragile. 

MD Anderson, Dartmouth, Greenville.  Mass layoffs in underperforming healthcare systems are nothing new.  In fact, with the new generation of administrators, increasingly informed by their experience in the finance and tech sectors, it’s surprising it doesn’t happen more often.  With the enormous capital expenditures required by electronic record systems and their delayed downstream payoff, even a slightly mishandled go-live can have enormous near-term repercussions.

What is disturbing, though, is the eerie parallels between the healthcare industry and the subprime crisis of 2007-08.  The documented debt of healthcare delivery organizations is up 308% since 2009 funding an enormous expansion of merger, acquisition and building of inpatient services. At the same time, the average rating of this debt, including those issued by non-for-profit and religious organizations is declining, even as these organizations are purchasing each other’s debt.  All this while the average medical costs to consumers, the ultimate end-users responsible for driving utilization has tripled as well.

All in the service of a market acquisition, premium maximizing model that by definition cannot be sustained.

So, in our healthcare system today, a formerly lucrative service is sold by suppliers who have over-leveraged themselves to fund further capacity in an effort to capture ever more costly revenue.  They continue to do so even as their over-extended customers can increasingly ill-afford the offered services and do everything in their power to delay their purchases.  In the end, though, most of those prospective customers transform into reluctant consumers, paying for unavoidable services with unsustainable debt that even the most aggressive organizations will never be able to collect.

Who’s going to go bankrupt first, the system or it’s consumers?  Who will be the Lehmann Brothers of healthcare?

The strategic solution is, of course, to take the contrarian approach and not play the unsustainable growth game.  Rather, work to create the most value out of every revenue dollar you capture by aligning your interests with that of your patients and clinicians.

Those who so this most effectively will be the anti-fragile winners of tomorrow.

You Should Know...

You CAN know what’s coming down the pike.

This month, the Congressional Budget Office (CBO) released a study of inpatient hospital costs for private insurer, Medicare Advantage and Fee-For-Service Medicare beneficiaries.  Studies such are these are the source-matter that informs the design of the payment models CMS generates. Even a brief perusal can inform your strategic insight—do it enough and you can recognize the inflection point of payment changes long before they actually happen, and you can create a reputation as a savant.

The most recent study looked at inpatient costs across a range of localities with a range of payer mix.  They found inpatient costs paid by commercial insurers to be almost twice the level paid by their Medicare and Medicare Advantage counterparts.  Interestingly, there was no real difference in cost between the Medicare and Medicare Advantage beneficiaries.  This similarity persisted across a wide mix of payers.

Data such has this has lead the CBO to conclude that CMS is on track with it’s current cost calculations.  Absent political influence, the constant urging by providers to upgrade inpatient payment models in an effort to generate more revenue will fall on deaf ears.

Not good news if you've massively increased you inpatient services with debt of declining quality.

High-Value Insight
Pay for your smoker’s costs, BEFORE they get sick

Smokers carry significant financial risk in value-based contracts.  But they may not yet manifest the clinical changes, such as COPD,  required to capture the additional revenue needed offset that risk.  Fortunately, the diagnosis of simple chronic bronchitis (ICD-10 J41.0) may provide an alternative.

If you can honestly document that the patient has a persistent chronic cough most days for the past two months, you can submit the code for this risk-associated condition.  Your patient does not have to be a smoker to qualify—beneficiaries that live in high pollution areas such as China or work in high particulate environments can carry the diagnosis as well.  Whatever the cause, as you treat the condition and try to slow progression, you can also bank a few years of capitation in anticipation of whatever costs that might come.

Q&A with Dr. Tom

You’ve spoken a lot about the role of hospice in value-based care systems.  What about palliative care?  What role does that play?


Palliative care is care that emphasized comfort in situations where effective treatment and even cure is still an option.

Unfortunately, the service is being increasingly misused as a “gateway to hospice”.

With the fragmentation of healthcare delivery and the commoditization of clinicians, the preparation of the patient for end-of-life issues has lead to the creation of the “Grim Reaper” model of care. You hear about these models over and over from across the country.  And it works like this:

Patients whose projected costs may harm the performance of the organization are identified through data mining and other techniques. The “palliative care clinician”, usually a semi-retired or part time physician or nurse practitioner is dispatched to their home to begin the process of getting the patient to think about end of life issues.  The clinician appears out-of-the-blue after a single introductory phone call, with no prior experience or relationship with the clinician.  Usually the visit is associated with subtle, and sometimes not-so-subtle arm twisting techniques, informed by some basic persuasion training the clinician may have undergone.

The result?  Terrified patients who are uncertain how truthful any of their clinicians have been with them—defiant and committed to push for all the healthcare care they can get, or newly depressed and ready to incur additional costs for care that they never would have sought in the first place.

Why aren’t their personal clinicians having these conversations?  Fragmented healthcare delivery systems, poorly aligned incentives, lack of autonomy, over-supervision, patient overload, disengagement, burnout.  Pick as many as you like.

Whatever the reason, the very presence of the “Grim Reaper” approach is the sign of a poorly executed care delivery system.

Palliative care is best used systematically to provide additional resources to treating clinicians involved in the care of patients with debilitating, uncomfortable conditions that are still treatable--even curable.  The palliative care clinician has a critical skill set and, if used appropriately, can generate enormous value for the treating clinician, their patients and the organizations that facilitate their care.


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