Friday, March 10, 2017

Whose Costs? Who Benefits? - A Close Reading of a Hospital System CEO's Prescription for Controlling Health Care Costs

The attempt to "repeal and replace" the Affordable Care Act has suddenly made health care dysfunction a hot topic in the US.  

For example, today, in my local paper, the Providence Journal, Dr Timothy J Bainbeau, the CEO of the Lifespan Health System,  the biggest regional health system weighed in on the problem of high and increasing health care costs.  A close reading of his commentary suggests how the leadership of big US health care organizations needs to think about whether their actions have become more of the problem than a source of solutions.

The CEO's Diagnosis and Prescription

 Dr Babineau began unremarkably with:

American health care is expensive. Too expensive. On this, there is little debate. In 2001 the median U.S. household spent 6.4 percent of its income on health care; by 2016, the same household spent 15.6 percent of its income on health care. That bigger share of the pie leaves less for other essential purchases, such as food, education and housing.

What was his diagnosis?  He stated that most costs are incurred in the care of severe acute or chronic illnesses.  So his prescription was:

A critical (but often overlooked) point is the fact that as much as 40 percent of spending during chronic and complex episodes is avoidable if providers and systems adhere to established standards of care. Reining in runaway health-care spending must involve better management of high cost episodes of chronic and complex care.


Rather than debate the actual percentage that is 'wasteful spending' (now commonly referenced at around 30 percent) we would be better served by continuing the hard work of identifying and eliminating areas within our own systems where needless variations in care add cost without improving outcomes.

To translate, most of health care spending is for severe acute or chronic illnesses.  For patients with these problems, we do too much, that is, by failing to "adhere to established standards of care."  Therefore, we must learn to do less, by "eliminating areas within our own systems where needless variations in care add cost without improving outcomes."  His entire focus is on ending needless utilization, presumably of specific diagnostic tests, therapies and programs.

As an aside, his assertions ignore some real controversies.  Dr Babineau implied that "variation" means needless or bad care.  This echoes the old "practice variation" research school, which showed that the rate of certain services, that is tests or treatments, varies in different geographic areas.  The problem is that this school has never clearly shown how much variation is due to variation in patients' characteristics, including illness severity and preferences, and is therefore "appropriate" in some sense.  It also fails to take into account how much variation is due to the inevitable uncertainty in diagnosis, and in predicting response to treatment.  Few diagnostic tests are perfect, so test results can rarely prove a disease is present or absent, but just can suggest how probable it might be.  Similarly, no treatment always cures, and most treatments have adverse effects.  So at best physicians can only predict the probability that a patient will improve, remain the same, or be harmed by a treatment.

Whose Costs?  Who Benefits? 

It is odd, though, that while Dr Babineau wrote an essay on reducing costs, he did not even mention how much anyone pays for any particular test, treatment, program, service, etc.  Nor did he mention whose costs most need reduction: patients', health care systems', insurance companies', governments', or "society's" costs?   That was probably due to his point of view, from the bubble of the hospital system C-suite, from which the viewof the outside world may be distorted.

Dr Babineau introduced his prescription for cost reduction with a defense of  American hospitals.
American hospitals and health care systems are among the best in the world.  Rather than decrying 'American health care is broken' and in need of rebuilding from scratch, a better strategy may be to look at what works well within our system and ask how we can build on those strengths while facing the escalating costs head on.

Hospital systems are in the health-care business, and we should not be reluctant to say so. No matter what wellness and prevention programs we collectively offer, inevitably a small subset of the population will still get very sick, and it is a core mission of health systems — working in close partnership with our primary and specialty providers — to take the very best and most efficient care of them when that happens.

But should hospitals be "in the health-care business?"     Most physicians of a certain age swore oaths on medical school graduation that we would put care of individual patients ahead of all other concerns, including making money. We surely have not fulfilled those oathes perfectly. Yet at one time health care and medicine could be seen as callings, just ways to make money.

In 2007, Dr Arnold Relman wrote(1) (and see this post):

The law also has played a major role in the decline of medical professionalism. The 1975 Supreme Court ruling that the professions were not protected from anti-trust law7 undermined the traditional restraint that medical professional societies had always placed on the commercial behavior of physicians, such as advertising and investing in the products they prescribe or facilities they recommend. Having lost some initial legal battles and fearing the financial costs of losing more, organized medicine now hesitates to require physicians to behave differently from business people. It asks only that physicians' business activities should be legal, disclosed to patients, and not inconsistent with patients' interests. Until forced by anti-trust concerns to change its ethical code in 1980, the American Medical Association had held that 'in the practice of medicine a physician should limit the source of his professional income to medical services actually rendered by him, or under his supervision, to his patients' and that 'the practice of medicine should not be commercialized, nor treated as a commodity in trade.' These sentiments reflecting the spirit of professionalism are now gone.

The Supreme Court challenge to attorneys' and physicians' professionalism was orchestrated by extreme market fundamentalists. Since 1978 when I obtained my MD from Brown, market fundamentalism (sometimes confusingly called "neoliberalism") has become dominant in the US. 

On the (now sadly dormant) Hooked: Ethics, Medicine and Pharma blog, Dr Howard Brody discussed the application of this reigning orthodoxy in economic.  Basically, supporters of market fundamentalism et al seem to assume that all markets are idealized free markets, and that free markets are like a super computer combining all human thought to provide wisdom in the form of price information.  Furthermore, since the market is based on supposedly rational choices made by free individuals, one cannot go back to question such choices. 

Hence Dr Babineau is hardly alone in regarding all of health care now as a business. But he and many others like to ignore the theoretic problems with market fundamentalism applied to health care, specifically the possibilities that 1) people's choice may not be free, may not be rational, and may not be based on coldly rational cognition and the best possible knowledge; and 2) one person's economic choice may limit another person's choices, or directly harm another person.   And never mind that Dr Babineau leads a non-profit organization, which states (per the most recent, 2015 Rhode Island Hospital IRS Form 990) that its mission is "delivering health with care."

Market fundamentalism suggests that hospitals and other health care organizations should be run like businesses to improve efficiency.  Thus Dr Babineau allowed "it is a core mission of health systems — working in close partnership with our primary and specialty providers — to take the very best and most efficient care of them when that happens."  Efficiency requires the reduction of costs, but whose? 

The worry is that Dr Babineau is really out to improve his own institution's efficiency, very possibly because he has incentives to do so.  There is considerable anecdotal evidence that hospital CEOs are rewarded for efficiency, but the effiicency of their own hospitals, not the health care system.   CEOs may get incentives when they increase hospital efficiency by cutting the institution's costs and/or increasing its revenue (look here for some examples.)  Sometimes these incentives are hugely disproportionate to any improvements in net financial position (look here for examples).  Sometimes CEO compensation goes up even when CEOs have cut the pay of or laid off lesser employees to cut costs (look here for examples).  Sometimes their pay goes up even when their actions correlate with worsening quality of care (look here for examples).

I cannot find any published rationale for Dr Babineau's compensation, but it is certainly substantial.  According to the most recently available IRS Form 990 (2015) for Rhode Island Hospital, Dr Babineau's total compensation (in 2014) was $2,405,868. 

So the concern is that the sort of efficiency Dr Babineau advocates may benefit his organization's and his own bottom line, but maybe not patients, or society.  And the promise he made that his own hospital system will improve efficiency may actually conflict with his promise to improve patient care.  


I submit that if we are really worried about why our health care system is sick, why we as individuals pay more and more for health care that is not improving, we should look beyond limiting practice variation or eliminating obviously useless, and hence perhaps uncommon services to improve "efficiency."  Instead, we should question whether health care can ever really function as a free market, and certainly whether hospitals, other health care "providers," and health insurers should be businesses that put their revenues ahead of patients' and the public's health. 

I am not a Catholic, but found the clearest voices on this issue to be those of the current and former Popes.  Pope Benedict XVI decried the transformation of medicine and health care into a business.  As we noted here, he wrote

during the current economic crisis 'that is cutting resources for safeguarding health,'... Hospitals and other facilities 'must rethink their particular role in order to avoid having health become a simple 'commodity,' subordinate to the laws of the market, and, therefore, a good reserved to a few, rather than a universal good to be guaranteed and defended,'


'Only when the wellbeing of the person, in its most fragile and defenseless condition and in search of meaning in the unfathomable mystery of pain, is very clearly at the center of medical and assisted care' can the hospital be seen as a place where healing isn't a job, but a mission,...
More recently, Pope Francis said,

Doctors, nurses and those who work in the field of health care must be defined by their ability to help their patients and be on guard against falling down the slippery slope of corruption that begins with special favors, tips and bribes, the pope told staff and patients of Rome's 'Bambino Gesu' children's hospital Dec. 15.

'The worst cancer in a hospital like this is corruption,' he said. 'In this world where there is so much business involved in health care, so many people are tricked by the sickness industry, 'Bambino Gesu' hospital must learn to say no. Yes, we all are sinners. Corrupt, never.'

Thus, I challenge health care executives to state their willingness to  put the care of patients ahead of their  organizations' revenue and own pay.  Will anyone step up?


1. Relman AS. Medical professionalism in a commercialized health care market. JAMA 2007; 298: 2668-2670. [link here]


Anonymous said...

A medical scare 18 months ago resulted in my being transported to a regional medical center, one of four in the US capable of treating my condition. Things went very well until I returned home, then the money grab started.

I was subject to watching the rehab people sort through files looking at ways to extend patients rehab so as to generate revenue.
My wife was pulled aside and told of the benefits of my continued care under their supervision.

There were questions by the insurance company regarding cost and our out of pocket expenses were explained away as “you can afford it.”
Health care executives may make large salaries, but the front line workers have adopted a mentality that as revenue generators they should share in the spoils.

Sadly negative comments were made about the regional medical center because “they don’t let me make money.”

Medicine needs to come to grips with a changing landscape. They can no long claim a higher calling and special knowledge. They need to look at patient care as their primary responsibility and moving patients out of their institutions as their primary goal, not maximizing a patient’s insurance.

Steve Lucas

Bob Laskowski said...

Healthcare is a business. A business need not be "bad". Being a "business" simply recognizes that there are "transactions" and "exchanges" being made. Many non-profits are businesses: the United Way, orchestras, ballet companies, art museums, the Red Cross, homeless shelters. The description of "managing as a business" connotes efficiency but begs the question of mission. Efficiency, properly focused is good for all. It makes sure that resources, which are always scare, get to the uses they are directed to. Mission forms the direction. I think that the proper criticism of many healthcare systems is that they have forgotten their mission. This is especially true of "not for-profits" who have narrowed the definition of "not for profit" to the mere provision of "charity care and undercompensated services". Being a "not for profit" is a matter of mission--regardless of whether one is an orchestra, a social service agency, or a hospital. The goal of all not for profits is "public benefit." Money is a means to the end of "public benefit" and all decisions need to be assessed from that vantage point. Investments are investments in public good. Investments need to be prudent financially to enable the future ability to serve the public.

A focus on "efficiency" or "unneccessary variation" without the context of public good is a hollow exercise. However, doing things that do not need to be done, when viewed in the context of "public good," is a waste of resources that potentially diminishes amount of good an organization can do.

Roy M. Poses MD said...

Dr Laskowski,

Thanks for your perceptive comment. You are certainly correct that "efficiency, properly focused, is good for all," and that "waste of resources potentially diminishes [the] amount of good an organization can do."

Furthermore, as you imply, it is possible to run a hospital system, or other kind of health care organization that is efficient in terms of not wasting resources that can better be applied to fulfill the mission, while remaining devoted to that mission. And I know you have done so. (Dr Laskowski is the former CEO of Christiana Care in Delaware.)

But I am afraid such cases are now the exception.

For the most part, I believe that in the many health care organizations, efficiency has become the dominant concern, and that efficiency tends to be applied as a blunt instrument, putting the health care mission in a secondary position, and sometimes actively undermining it. See some of our posts on mission-hostile management:

Furthermore, US health care managers have been pushing "efficiency" for 20-30 years, while our health care system has become the most expensive in the world, yet by every measure of quality available, incresingly mediocre in terms of providing good care or good outcomes compared to the other developed countries. Correlation does not prove causation, but I defy those who put such an emphasis on efficiency to demonstrate what benefits that emphasis has had for patients' and the public's health.

The trick will be how to we reverse this bandwagon, and promote the ideal of health care organizations that put the mission first, but are operated in a prudent, certainly not a wasteful manner to conserve resources in support of the mission?

Joseph Arpaia said...

"unnecessary variation". Sounds a lot like Procrustes. Where is Theseus when we need him?

Bruce E. Woych said...

The ongoing attempt to capture the medical revenue pool by private equity is an insidious assault of authentic Health Care delivery. Couple this with the fact that private of profit insurance (growing too big to fail, and manipulating markets as well as political influence) no longer do the original job of distributing the burden of catastrophic "risk" based upon tragedies of health failure, but serve to distribute profit and protections against medical/cost ratios to protect an unconditional priority on profit incentives rather than medical service to all individuals. The call for "free" market standards is an insult to intelligence. There is no "free" market for morbidity and mortality that is negotiable.
the degree of perverted incentives and moral hazards are treacherously rationalized by the necessity of institutional survival that denies the public priority of service and obscures reasoning with accounting figures that are never accountable for the magnitudes of excess and self reward buried in the systems complexity. In the end the claim of free market simply means rationing by income, and higher income brackets certainly buy "risk" protection with their access to prime insurance coverage. Of course such internal 'cost' is passed on in the "free market" when cost of living adjustments boost salaries of the rich and exploit daily living expenses of the public
sector creating a more insidious drain on a healthy social economy all in the name of simply doing business.

The facts and truth stated in this article is the very exposure that seems to evade even the intelligent assessments of health care and its entrenched diversions from simply following the money. This is a dark pool of perverted interests in what becomes wealth creation based upon pain,suffering and mass denials of service to preserve the
profit driven market of private life styles grossly out of proportion to the general public interests to manage and maintain a healthy society

Anonymous said...

No solutions offered. The obvious is Medicare for all. The first step is Medicare for 55+ and folks who have used up their lifetime maximums. Let the insurance companies fight over insuring the healthy. As time goes by we will get to single payor which is the best answer to a difficult situation.

Roy M. Poses MD said...

Anonymous of 21 March, 2017 -

I agree that a "public option," or Medicare for all for 55+, or single payer would improve the provision of health insurance, and have advantages over our current system which is so heavily based on private, for-profit health insurance.

But there are lots and lots of other problems which these would not address. If you peruse this blog, you will see we have offered some policy-level and some professional and personal solutions to some of these myriad problems. But since many people (and health care professionals) don't know about many of these problems, offering solutions has had little impact.

IMHO, we should ban the commercial practice of medicine, ban for-profit corporations from offering/ doing direct patient care (as hospitals, dialysis providers, hospices, mental health facilities, etc, etc, etc) and from offering health insurance, and ban certain types of conflicts of interest affecting health care professionals and policy makers. But again, since those are solutions to problems about which most people are unaware, right now these aren't going to get too far.

Anonymous said...

Geez, what would happen the next day after the bans you describe? Would people needing the services of the banned activity providers get care?

Doesn't sound like real solutions to me. Expanding Medicare seems more doable and less hurtful.

Roy M. Poses MD said...

Anonymous of March 28,

Well, if anyone seriously wanted to turn my telegraphic suggestions into real policy, there would be a lot of details to address. Presumably one would be how to phase in the changes to minimize the disruption. I would imagine that the for-profit hospitals, for example, could be broken up and transformed into smaller community hospitals. Some might be shut down. But right now, community hospitals are failing, or being bought up by huge systems, many for-profit or non-profit but acting like for-profit. The doctors employed by for-profit corporations could go back into private practice (and not have to compete with large corporations) or work for local community non-profits, etc, etc.

I agree that expanding Medicare would be a good idea. It would still have to be phased in, no? But existing Medicare is far from perfect. In particular, the current way Medicare sets payments to physicians is really dysfunctional, and probably responsible in part for the current US emphasis on expensive procedures rather than cognitive medicine and primary care. See our posts on the RUC: Also there is that little detail about how Medicare is currently forbidden to negotiate drug prices or establish a formulary.

I agree that if my ideas were implemented, they would cause financial pain, but mostly afflicting some people who have done very well, and sometimes got fabulously wealthy from the current system. If the changes were designed with enough attention to detail, I imagine there would be more health care professionals providing direct care. Some managers would have to find new lines of work. They may be more able to withstand financial pain better, however, than all the middle-, working-, and lower-class people who are being crushed by the current system.