Targeted population health management can help a hospital grow market share

In 2005, St. Luke's Hospital in Chesterfield, Mo., launched the "Passport to Wellness" program to help employers reduce preventable illnesses by providing access to screenings, health education, health coaching, disease management, and healthy lifestyle programs. The program was designed to influence consumer choice of hospitals and physicians and influence health insurance purchasing decisions. St. Luke's program also met goals created by local businesses, including identifying health risks of each employer's workforce and reducing health-related costs.     

Physician financial incentives and cesarean section delivery

The "induced-demand" model states that in the face of negative income shocks, physicians may exploit their agency relationship with patients by providing excessive care. We test this model using an exogenous change in the financial environment facing obstetrician/gynecologists: declining fertility in the United States. We argue that the 13.5% fall in fertility over the 1970-1982 period led ob/gyns to substitute from normal childbirth toward a more highly reimbursed alternative, cesarean delivery. Using a nationally representative microdata set for this period, we show that there is a strong correlation between within-state declines in fertility and within-state increases in cesarean utilization.     

Torts, expertise, and authority: liability of physicians and managed care organizations

We examine optimal individual and entity-level liability for negligence when expected accident costs depend on both the agent's level of expertise and the principal's level of authority. We consider these issues in the context of physician and managed care organization (MCO) liability for medical malpractice. Under current law, physicians generally are considered independent contractors and hence MCOs are not liable for negligent acts by physicians. We find that the practice of reviewing the medical decisions of physicians affects their incentives to take care, which in turn implies that it is efficient for MCOs to be held liable for the torts committed by their physicians.     

Telling the data story the right way

Effective data-driven analyses of service-line performance require: Buy-in and agreement at the outset from all parties (hospital and physicians) on the validity of the data used to evaluate service-line performance, Actionable data and metrics relevant to physicians, with financial goals tangibly linked to clinical improvement, Transparent sharing of data with physicians to build their trust and support the case for change, A physician champion who can help validate findings and guide how data are presented, Willingness of physicians to acknowledge that the opportunity for improved margin depends largely on the variable costs that they control as individuals.     

Aligning managed care contracts, compensation plans, and incentive models

Today's pure production-based compensation and incentive models are lagging behind new, third-party, "value based" payment models, such as shared savings, bundled payments, and pay for performance. Financial executives are struggling with the emerging disconnects between new, external payment models and traditional methods providers use to distribute funds internally. To begin to align internal payment models with emerging third-party payment models, providers should inventory the misaligned incentives within their own organizations, engage their physicians and payers in a dialogue on what needs to be paid and how, and learn from past mistakes. No perfect payment distribution model exists. Rather, providers should choose a best-fit model based on their market position, culture, and readiness for change. Ultimately, finance executives should take the lead in aligning their organization's internal and external payment models.     

Physicians and administrators can work together

This article describes the working relationship between the administration and medical staff of the Mid-Maine Medical Center which is comprised of two separate modern hospitals. The authors advocate the philosophy that "a hospital which harnesses the medical staff's considerable talent and expertise through sound organizational input will be a stronger institution." They explain that patient care is becoming increasingly complex and that management decisions impact heavily on the care provided. In 1973, the Medical Center changed from its traditional organizational form of having a full-time medical director and an administrator report to the board of directors, to a modified corporate model designed to increase physician involvement. In the new organization, the vice president of finance and a part-time chief of staff (acting as vice president for medical affairs) report to the president (former medical director) who, in turn, is responsible to the board of trustees. The authors attribute the success of the reorganization to the CEO's willingness to delegate and share authority, not to the CEO's physician background. Planning at the institution involves a committee of six physicians, four administrators, and one full-time planner. A budgeting committee of three physicians and three administrators is responsible for the review of the budget as well as for making recommendations for the executive board for the expected volume of services. It is concluded that there is no perfect way to run a hospital, but the involvement of doctors in hospital decisions is necessary.     

Enhanced ABC costing for hospitals: directed expense costing

Space limitations do not allow a complete discussion of all the topics and many of the obvious questions that the preceding brief introduction to directed expense costing probably raised in the reader's mind. These include how errors in accounting practices like posting expenses to the wrong period are handled; and how the system automatically adjusts costs for expenses benefiting several periods but posted to the acquisition month. As was mentioned above, underlying this overtly simple costing method are a number of sophisticated and sometimes complex processes that are hidden from the normal user and designed to automatically protect the integrity and accuracy of the costing process. From a user's viewpoint, the system is straightforward, understandable, and easy to use and audit. From a software development perspective, it is not quite that effortless. By using a system that is understood by all users at all levels, these users can now communicate with each other in a new and effective way. This new communication channel only occurs after each user is satisfied as to the overall costing quality achieved by the process. However, not all managers or physicians are always happy that the institution is using this "understandable" cost accounting system. During one of the weekly meetings of a hospital's administrative council, complaints from several powerful department heads concerning the impact that the use of cost data was having on them were brought up for discussion. In defending the continued use of the system, one vice president stated to the group that cost accounting does not get any easier than this, or any less expensive, or any more accurate. The directed expense process works and works very well. Our department heads and physicians will have to come to grips with the accountably it provides us to assess their value to the hospital.     

Gauging the financial impact of physicians on hospitals

A study evaluated the impact of physicians on hospital finances in four basic areas of physician care: primary care, medical specialties, surgical specialties, and other specialties. The study highlighted inherent differences in the activity and revenue-generating patterns of physicians to provide insight into the financial implications of the clinical enterprise. The findings offer a useful perspective on hospitalist programs, particularly regarding the point at which a hospitalist program is likely to be financially self-sustaining. Such data could be used to determine the number of physicians needed to support a new or expanded clinical service.     

Cost and effectiveness of physician peer review in reducing medicare overutilization

There has been concern that some physicians within the U.S. Medicare program may be rendering medical attention unecessarily. To help curb this possible overutilization, peer review committees have been formed in certain areas. These committees of practicing physicians examine utilization practices of doctors.The objective of this study is to determine the cost and effectiveness of the peer review process. In order to do this, we compare the costs and benefits resulting from peer review. The benefits are two types. One type is recoverable overpayments, which peer review has established as amounts that were paid for unnecessary medical attention. The other type is the deterrent to physicians against overutilization, due to the presence of peer review.The findings of this study are that each of the benefits of peer review substantially outweigh its costs, and that the benefits due to the deterrent effect of peer review are evident in all review areas considered.     

Finding a lasting cure for U.S. health care

In "Making Competition in Health Care Work" (July-August 1994), Elizabeth Olmsted Teisberg, Michael E. Porter, and Gregory B. Brown ask a question that has been absent from the national debate on health care reform: How can the United States achieve sustained cost reductions while at the same time maintaining quality of care? The authors argue that innovation driven by rigorous competition is the key to successful reform. A lasting cure for health care in the United States should include four basic elements: corrected incentives to spur productive competition, universal insurance to secure economic efficiency, relevant information to ensure meaningful choice, and innovation to guarantee dynamic improvement. In this issue's Perspectives section, eleven experts examine the current state of the health care system and offer their views on the shape that reform should take. Some excerpts: "On the road to innovation, let us not forget to develop the tools that allow physicians, payers, and patients to make better decisions." I. Steven Udvarhelyi; "Health care is not a product or service that can be standardized, packaged, marketed, or adequately judged by consumers according to quality and price." Arnold S. Relman; "Just as antitrust laws are the wise restraints that make competition free in other sectors of the economy, so the right kind of managed competition can work well in health care." Edward M. Kennedy "Biomedical research should be considered primarily an investment in the national economic well-being with additional humanitarian benefits." Elizabeth Marincola.     

Managing margins through physician engagement

Hospitals should take the following steps as they seek to engage physicians in an enterprisewide effort to effectively manage margins: Consider physicians' daily professional practice requirements and demands for time in balancing patient care and administrative duties. Share detailed transactional supply data with physicians to give them a behind-the-scenes look at the cost of products used for procedures. Institute physician-led management and monitoring of protocol compliance and shifts in utilization to promote clinical support for change. Select a physician champion to provide the framework for managing initiatives with targeted, efficient communication.     

Entry and regulation: evidence from health care professions

In many countries, pharmacies receive high regulated markups and are protected from competition through geographic entry restrictions. We develop an empirical entry model for pharmacies and physicians with two features: entry restrictions and strategic complementarities. We find that the entry restrictions have directly reduced the number of pharmacies by more than 50%, and also indirectly reduced the number of physicians by about 7%. A removal of the entry restrictions, combined with a reduction in the regulated markups, would generate a large shift in rents to consumers, without reducing the availability of pharmacies. The public interest motivation for the current regime therefore has no empirical support.     

PHYSICIANS AND RESOURCE MANAGEMENT IN HOSPITALS: AN EMPIRICAL INVESTIGATION

Recent concern has been expressed over the reluctance of physicians in hospitals to take 'resource management to their hearts' (Pollitt et al. 1988, p. 232). This is important as physicians are increasingly becoming organization members with considerable economic and managerial involvement in hospitals. This paper provides some empirical evidence of differences which occur in physician behaviour once they become integrated into hospital management structures. Differences in physician managers' orientations to goals which focus on the organization as a system are compared to senior physicians in the same setting. In addition, a comparison is made between the attitudes and use of budgeting systems, a resource management strategy. The results indicate that changes in physician managers' orientation to management-related goals and organization obligations are reflected in their budgeting behaviour.     

Pattern-of-treatment differences among primary care physicians in alternative systems of care

In a recent study, the average treatment pattern of HMO-based primary care physicians is found to be significantly less expensive than that of indemnity-based primary care physicians. This difference is because the HMO-based physicians' style of medical practice is less hospital-intensive.     

Accountable clinical management: an integrated approach

Hospitals should move from the traditional siloed approach to managing the clinical side of the enterprise, where finance leaders and clinicians play distinctly different roles without coordination, to an integrated approach that assembles a multidisciplinary team to focus coordinated attention on identifying and pursuing opportunities for clinical process improvement. Senior executives should lead this top-down effort to establish goals and set priorities for action, using an integrated, high-level reporting dashboard that shows overall performance in terms of quality, efficiency, and patient experience. Implementing integrated clinical management requires a clear, consistent communications plan and messaging for physicians and managers to show why it is increasingly necessary for both hospitals and physicians.     

Primary care physicians: increasing demand, shrinking supply

Any serious proposal for reforming the U.S. health care system must include a consistent, coherent national policy for increasing the supply of primary care physicians.