The Affordable Care Act: Love it, hate it, fear it—it’s here! So how will our local hospitals cope?
Underneath the smoke and din of the ideological warfare being waged over the Affordable Care Act (ACA), local hospitals are working steadily to understand the changing health care landscape and to adapt and innovate so they can continue to deliver care to their communities.
To find out how the law will specifically impact our local hospitals, we talked to key medical and financial officials in three different hospital systems in the area: Kaiser Permanente in Santa Rosa and Marin, St. Joseph’s in Napa and an affiliated group of small, district hospitals in Marin, Sebastopol and Sonoma. Their responses ranged from enthusiastic anticipation (Kaiser) to concern (everyone else).
First, in case the facts have been obscured by the polarized media coverage, here’s a brief summary of much of what the act will do for patients:
The Affordable Care Act provides a wide array of changes and improvements to health care coverage, to be launched in progressive increments, from 2010 through 2014. The first changes include: guaranteed coverage for young adults, tax credits for small business to cover employees’ insurance, plans to cover preexisting conditions and 50 percent discounts for name brand drugs in the Medicare “donut hole.” The act provides coverage for more people on Medicaid and new coverage for people who lose their insurance before they become eligible for Medicare. It provides free preventive care, including, as of August 1, 2012, complete coverage for a range of women’s health screenings. It eliminates lifetime limits on insurance coverage, holds insurance companies accountable for unreasonable rate hikes and offers incentives to rebuild the primary care workforce.
The law guarantees consumer assistance programs, programs to strengthen community health centers and increases payments to rural health care providers. It assures preventive care for seniors and requires that at least 85 percent of every health insurance dollar be spent on health care and improved quality. Additionally, the law guarantees improved care for seniors after hospital discharge and increases access to services at home and in the community. It encourages physicians to join together in “accountable care organizations” to coordinate patient care and reduce unnecessary hospital admissions, and offers incentives to hospitals to improve quality of care. In 2013, there will be increased Medicaid payments for primary care doctors and additional funding for the Children’s Health Insurance Program (CHIP). Finally, in 2014, the affordable insurance exchange—a competitive marketplace for purchasing health benefit plans—will be underway, letting those without insurance purchase policies on a competitive exchange.
So far, so good. Now how will the hospitals deliver the additional care?
The experts we talked to agree that guaranteeing health care to as many people as possible is, on the face of it, a good thing. Everyone also agrees that the current health care system is unsustainable and that this act is a needed and admirable first step.
The line between enthusiasm and concern falls between two basic models of health care delivery and payment: the integrated model (sometimes called “capitation”), where the insurance plan and the salaried physicians all work together for patients who buy in as members and pay a regular fee for their overall health care—the Kaiser Permanente model—and the fee-for-service model, in which insurance providers pay doctors and hospitals for the number of services rendered, which is the dominant model in the United States. In the fee-for-service model, illness is profitable; in the integrated model, wellness can be just as profitable. Because the Affordable Care Act guarantees coverage to a large number of people who will want and need services, yet will reduce reimbursements to physicians and hospitals obliged to provide those services, hospitals within the fee-for-service model will be at a disadvantage.
Kaiser is ready to “Thrive.”
“We’re enthusiastic because we want more people to have access to care,” says Kirk Pappas, M.D., physician in chief at Kaiser Permanente Santa Rosa Medical Center. “We believe everyone should have access to care and have a primary care physician. And we believe it’s the right thing for our country.” The problem he sees with the act is that it doesn’t go far enough. “Fee-for-service is the wrong way to provide care. It both directly and indirectly incentivizes over-utilization. You pay people to do surgery, and guess what? You get surgery! You incentivize people to do quality and prevention? That’s what you get. Unfortunately, 90 percent of the people in our country get care on a fee-for-service system. That’s what the health care law didn’t address.”
To him, health care coverage is an ethical principle. “From a sociological standpoint, from an ethical standpoint, as a physician, we shouldn’t be worried about things like coverage when it comes to prevention, routine care and things like that,” he says. “But we don’t have a society that’s willing to come to grips with that.” He says the Affordable Care Act represents a first step toward acknowledging that, or at least, “beginning the conversation.”
For him, the benefits of health really affect the whole society. “If you think of it from a business standpoint,” he says, “you want to have a healthy business, you need to have healthy employees. If your employees don’t have access to affordable health care, they’re going to get sick, and they can’t show up for work. So the business community needs to see that moving in a direction of providing access to health care for everyone is in their best interest if we want to compete in a global economy.”
“I’m very proud that we’ve actually taken the first step toward covering everybody,” says Gary Mizono, M.D., physician in chief at Kaiser Permanente San Rafael Medical Center, “but we’re not covering everybody yet.” He points out that large numbers of people will be excluded, such as undocumented immigrants, and they’ll still be going to the emergency rooms and community clinics for primary care. “But still, we’re going to have more people covered, which I welcome.”
“More for less”
All the physicians we talked to are passionate about the health and well-being of their patients. All are committed to the health of their hospitals. But because it increases the number of patients needing services while reducing payments for those services, the act puts physicians and hospitals in the fee-for-service model in an awkward place. Each of them welcomes “reform” but rues the imperfect system in which our overall national health care remains.
“The act implies we want to take care of everyone and get them insurance,” says Vincent Morgese, M.D., executive vice president, COO and CMO for Queen of the Valley Medical Center in Napa, “but that we want to do it to the tune of about $500 billion less over the next five to 10 years. So think about that: We want to take care of 38 million more people—for $500 billion less.”
And yet, he remains committed to all the people, insured and uninsured. “At St. Joseph Health System and its ministries, our mission is to especially look out for the vulnerable. So, as we embrace population management, we can’t just look to taking care of the members who happen to sign up with an insurance product, we’ll focus on taking care of anyone who needs health care, including those who choose to pay a tax instead of getting insurance, as well as those who won’t qualify for any type of coverage,” he says.
“Our mission is designed to serve our communities, and so as we approach health care reform, our choices will be somewhat different, because we’ll be looking to care for those who aren’t members of any plan.”
How are they going to do that?
Morgese answers, “We’re going to look at what we do well today, and we’re going to keep doing it really well, such as our quality outcomes, which have earned the hospital national recognition. And then we’re going to look at both what we don’t do well today and where our pilot projects aren’t panning out, don’t bring higher levels of patient satisfaction or don’t bring better population outcomes.”
Health care isn’t just what goes on in hospitals, he explains, it’s about how you manage the population inside and outside of the hospital that works to create health, “and only put people in hospitals when they really need hospitals, keep them there just for what they need.” This may not be the best business plan for a fee-for-service-based hospital, but it’s highly likely what most people would consider in their interest. Dr. Morgese goes a step further, adding that, “it would be nice if our society took more responsibility for its own healthy lifestyle and sensible living approaches,” he says, “including wearing seatbelts and helmets, not smoking and maintaining the right weight.” He not only believes this is important for the future of his hospital, he’s counting on it.
“Our health system is based on three things: perfect care, sacred encounters—that’s our faith—and community health. Part of our mission is to contribute back to the community, and part of those funds go to staffing our community outreach department. They’re the ones that have been innovative with new care models and where we’ve really had success in caring for populations.”
To him, when you help people with their life issues, you can help them learn to take care of themselves and to understand how to keep healthy. It’s hard to think about healthy choices when you don’t have a roof over your head. So, Dr. Morgese encourages a system that would invest in health, and “getting us to take care of ourselves and one another and feel better,” and only using doctors, hospitals and emergency rooms when you really need them. That, to him, would be a good model—but whether it could ever be put in place, he says he just doesn’t know. “What I would say is that society, through our political structure, has to decide what we’re going to care for. Unfortunately, that’s not really how the act is written.”
Health care is not the same as health
Almost as an afterthought, Dr. Morgese makes a point not often articulated in the discussion of health care coverage: namely, that having access to health care and being more healthy don’t necessarily go hand-in-hand. The real point, he emphasizes, is to have access to the righthealth care at the right time. “That’s the argument where we are now,” he says. “We paid for health care—we paid a lot and got lots of health care—but did we get the most effective health care? At the end of the day, this argument is going to get to how, if I want to live one week longer, and it costs $2 million, is that of the same benefit to the public as $2 million worth of care spent on immunizing 200,000 children? Society needs to answer this.”
For him, it boils down to value. “We want value in health care—not quantity. We want to pay for what will benefit the most people the longest and the best.”
Of course, such a drastic change will come with consequences. “The landscape will change, because there will be other hospitals that will be less successful,” Morgese predicts. “They’ll have their finances impacted more and won’t be able to keep up in terms of ranking in quality metrics. Ultimately, some of those hospitals may go away.”
Small hospitals form strong networks
A couple of years ago, one of those hospitals surely to be on the list would have been Sonoma Valley Hospital, a small district hospital in the town of Sonoma, surrounded by large hospital systems. Up until very recently, another would surely have been Palm Drive Hospital in Sebastopol, another small district hospital. Both have struggled historically and publicly with financial problems, but both are now affiliated with Marin General, a larger, also district, hospital. In its second year of new management, Sonoma Valley Hospital is looking to the coming change with, if not the enthusiasm of Kaiser, at least a certain amount of concerned equanimity.
Rick Reid, chief financial officer for both Sonoma Valley and Palm Drive hospitals, as well as vice president of finance for Marin General Hospital, says he’s been expecting a change in the health care system for a “long, long time.”
As he sees it, first and obviously, there will be more people covered, which is good. But also, the rate of reimbursements to hospitals for Medicare and Medi-Cal patients will change. To hospitals such as Sonoma Valley, which serves a high Medicare population, this coming change has Reid, like Dr. Morgese, on high alert.
The reason is that hospitals with a disproportionate share of Medi-Cal or Medicare patients with supplementary income get what’s called a “Disproportionate Share Payment” (DSH) from Medicare. Sonoma Valley gets a DSH of about $800,000 per year. “There are also Medi-Cal or Medicaid disproportional share payments,” he says, “but we don’t quality for them. But a big part of the funding in the health care reform legislation is that the DSH is going to be reduced by 75 percent. So by October 1, 2014, our payment would go from $800,000 annually to $200,000.” This, for a small hospital operating on a narrow margin, will represent a considerable hit. “For larger places, that payment could be millions and millions of dollars,” he says.
An image comes to mind of submarines with torpedoes speeding toward their hulls. What action can hospitals take?
Reid, a humorous and solidly confident man, who’s been in the health care business for years, says, smiling, “The only thing we can really do is try to plan how we’re going to provide services for the additional patients who’ll be covered along with those who are getting care right now. Those patients will be coming into the program under Medicare or Medi-Cal rates, which are fairly low and don’t cover the cost of providing the service. So you’re going to be providing more services at one of your lowest paying insurance reimbursements.” Which is the opposite of what you’d want. “Right,” he agrees. “So the theory is that you’re providing services to those patients now—through self pay or no pay—and at least in the future you’ll get a Medicaid payment. So you’ll get something.”
Then comes the dicey part. If the known numbers of no-pay and self-pay patients are converted to Medi-Cal or Medicare, one might be able to work out an equation to estimate the expected additional payments to cover DSH losses. However, says Reid, there may be a lot of people who haven’t had any coverage before, and who couldn’t afford care, who’ll come in with chronic diseases they haven’t been able to get treated—and that may add up to a lot of sick people. “That’s the great unknown,” he says. “If it’s really going to be a conversion of self pay to small pay, how does that balance out with the DSH reduction? We don’t know.”
Ready or not…
What Reid does know is that change is coming and hospitals needs to be prepared. To begin, the move to affiliate on the part of the three North Bay district hospitals has been a major step toward efficiency, cost savings and skills sharing. “One of the advantages of being part of a system,” he says, “is that it gives you additional resources that you wouldn’t otherwise have.”
The smaller hospitals have access to the advice and support of the seasoned upper management executives of Marin General as well as their different consulting groups, who can help them plan for and strategize for the future. Some of the cost-sharing opportunities are impressive. Reid tells of a particular joint replacement implant they purchase at Palm Drive that, because they can now access the preferred pricing that MGH has (because they do more volume), they actually save about $85,000 per year—buying the same product they did before.
As he looks toward the future, Reid admits feeling uneasy about the act in the short term, “because there are so many moving parts and so many unknowns.” But looking long term, he sees an “inevitable” shift away from the fee-for-service model toward the accountable care organizations that the act recommends. These “ACOs” work similarly to the Kaiser model, in that they’re cost-efficient organizations of coordinated health care providers that care for groups of patients with reimbursements tied to quality. “We were talking in our finance committee last night,” says Reid, “that five years from now, instead of saying, ‘Why didn’t you meet your budget on discharges,’ they’ll say, ‘Why are you exceeding your budget?’ These people won’t be in the hospital if we’re doing a good job managing their care.’”
Don’t panic
In spite of all the uncertainty, each one of these health care leaders rests his confidence on vision and competence. “We think the health of our community—and our county—is going to be better,” says Dr. Pappas. “This is an opportunity, this is a challenge. We’ll get through it.”
Dr. Morgese actually visualizes a future of stratified health care, somewhat like the Southwest Airlines model, he says. “I think we’re going to have a large Diet Coke-and-peanuts economy class, and we’re going to have a business select class of folks who want to pay to have better access to a wider range of hospitals and providers, and then there’ll be those who want to take their hard-earned dollars and spend a bunch of it to have their doctor’s cell phone and be able to call them any time of the day or night.
“I think we’ll probably settle, as a society, on a certain amount of basic health care that should be available to everybody. People are people. I never found it of any benefit, as a physician and human being, to try to decide that one person has more of a right to health care than another. We should all have the same rights.”
The main thing, he says, is not to panic. “Look,” he says, “this country has proved many times that its greatness is in its ability to work together and to deal with unknowns.”
Reid agrees: “Personally, I think patients can be assured that our hospitals are going to be able to adapt to the changes coming at us and still be here to provide care to them. We just have to stay on top of it.”
