At One Academic Medical Center: "Profitability" Trumps "Doing the Right Thing"

A post on the Health Care Blog opened a window into the thinking of top leaders of health care organizations. The post was written by Gary S Kaplan MD, the CEO of Virginia Mason Medical Center, a well reputed US academic medical center. It seemed generally well-intentioned, and was focused on the creation of an organization of US health care CEOs "dedicated to transforming health care and creating a more sustainable health system."

But my interest today is not this organization or its future plans.

Dr Kaplan's post included,

We, unfortunately, in the current payment system, reduce our profitability by doing the right thing. Despite my very supportive board of directors, they will not allow me to lead our organization into bankruptcy by doing the right thing. We need to change our payment system if we truly want to ensure universal coverage, improve quality and reduce cost.

I completely agree with Dr Kaplan about the need to change how we pay doctors and hospitals. But note his second sentence.

It implies that the leadership of Virginia Mason sees "profitability" as a goal of the organization that supersedes "doing the right thing." Furthermore, Dr Kaplan implies that his medical center's board of directors has prevented him from "doing the right thing," in order to avoid "bankruptcy."

Perhaps this was just a horribly written paragraph. But it does seem to say that at Virginia Mason Medical Center, the leadership thinks it is less important to uphold the organization's mission, that is, to do "the right thing," and more important to promote "profitability."

However, Virginia Mason Medical Center is a not-for-profit organization. (See this link.) A not-for-profit organization should not have "profitability," by definition.

Furthermore, the leadership of a not-for-profit organization is supposed to uphold the organization's mission, and to put this mission ahead of other concerns. This is called the duty of obedience, and is a fundamental duty of leaders of not-for-profit organizations (see this link). Failure to uphold the mission threatens the fundamental integrity of the organization.

Naturally, to fulfill the mission, the leadership of a not-for-profit should not let the organization go bankrupt. It should be concerned about raising and having sufficient funds to make an honest attempt to fulfill the mission. But bringing in money should be secondary to the mission, and "profitability" should not be a goal.

By the way, the current stated mission of Virginia Mason Medical Center is:

Our vision is to be the Quality Leader - Our aspiration is not to be the biggest, but to be the best. We will differentiate ourselves on the basis of quality.

Our mission is to improve the health and well being of the patients we serve - Healing illness is our first priority and is what gives our people the energy for our vision. We are also committed to providing a broad range of services that improve one's sense of well-being and which prevent illness.

We have previously discussed how a leader of another not-for-profit academic medical center revealed that his major criterion for evaluating faculty members was how much money they brought in, not how well they fulfilled their academic and clinical responsibilities. His goal was to make sure enough faculty were "taxpayers," people who brought in more money than they consumed (not that enough faculty were good clinicians, teachers, or researchers.) Again, it seemed that his organization put making money ahead of fulfilling its mission, ignoring their duty of obedience.

Now apparently another leader of a not-for-profit academic medical center has let slip that the leadership of his organization is thinking the same way, but on a more macro level.

By the way, I doubt that the thinking disclosed by these two leaders is anomalous. What is anomalous is that they made it public. Many academic medical institutions could be lead by people who put profits ahead of mission, thus shirking the duty of obedience, and hollowing out the integrity of their institutions.

Academic medical institutions, like most health care institutions, are now lead by business people who grew up in what now appears to have been the second gilded age. The global economic meltdown has made it clear that we just lived through an era in which business leadership was too often marked by arrogance, greed and corruption. Business leaders took ridiculous risks, deceptively marketed products, and manipulated financial instruments to generate short-term profits, and thus to generate fabulous payments to those same leaders. And we have seen how these practices nearly destroyed the global financial system and have lead the world to the brink of a new great depression.

At least the global financial meltdown has discredited the notion that markets not subject to any external regulation or policing will somehow police themselves. So maybe it is time to add a little regulation and policing to health care. One place to start would be the duties of the leaders of not-for-profit health care organizations.

These include

• the duty of obedience: they need to put their organizations' missions ahead of other concerns.
• the duty of loyalty: they need to give their organizations their undivided allegiance when making decisions.
• the duty of care: they need to exercise reasonable care when making decisions.
  

But as long as the leaders of not-for-profit health care organizations continue to put profitability ahead of mission, things will continue to get worse.

BLOGSCAN - When Fighting Wooden-Headed Reimbursement, No Good Deed Goes Unpunished

On the Running a Hospital blog, Paul Levy describes how Virginia Mason Medical Center in Seattle tried to increase the quality and efficiency of its services for specific medical conditions, with prompting from health insurer Aetna Inc. We had posted about these efforts, which seemed to be one antidote to the sort of wooden-headed health reimbursement policies leading to higher costs and lower quality that we have decried. The problem with Aetna's and Virginia Mason's well-intentioned efforts were that they have hurt the Medical Center's bottom line, which is mainly a factor of the traditional, wooden-headed reimbursement policies of other commercial insurers, and of Medicare and Medicaid. It seems no good deed goes unpunished....

One Antidote for Wooden-Headed Reimbursement

We have discussed (here and here) wooden-headed reimbursement policies in health care, and the perverse incentives they offer. Reimbursements made by insurance companies/ managed care organizations and government agencies in the US are rarely related to the perceived values of the reimbursed services or goods to patients, the benefits versus harms provided by the goods or services, or the costs of making the goods or providing the services. Instead, reimbursement generally tends to be higher for newer, more "high-technology," and procedural goods and services. Furthermore, the amount paid to physicians and other health care professionals to talk to, examine, and think about patients in order to make the best possible decisions on their behalf falls ever farther behind inflation.

The Wall Street Journal just reported a possible antidote for these sorts of wooden-headed reimbursement policies. To summarize, Aetna Inc., a large managed care organization, confronted the leadership of Virginia Mason Medical Center (a major academic medical center in Seattle) with its high costs compared with other hospitals. The Virginia Mason leadership was open to making changes, and developed a team approach to streamline its services. Resulting innovations included a simplified method for handling lower back pain, emphasizing, as per the best available evidence, early physical therapy for uncomplicated cases; starting patients with gastroesophageal reflux disease (GERD) when possible on generic drugs, which are generally as effective as brand-name drugs for this condition; and increasing the provision of "rescue" drugs for recurrent migraine headache to patients with this problem .

But these innovations, although they lowered costs and seemingly were good for patients, hurt Virginia Mason's bottom line. For example, "the big employers saved $100,000 in the first year. But Virginia Mason fell into the red on the average migraine case, instead of breaking even as before."

Amazingly enough, Aetna was understanding. "A novel solution, crafted with the help of the big employers, ultimately let Virginia Mason share in some of the savings it created -- by paying the medical center more for some cheaper treatments."

As the article noted,

Insurers often reimburse high-tech procedures richly, while simpler remedies and visits to doctors, therapists or nurses earn far less and sometimes incur losses. With each MRI that Aetna and the employers avoided at around $850, Virginia Mason lost about $450 in profit. The payment system of government-sponsored Medicare, which private health plans also use as a template, tends to reward the big capital expenses of buying high-tech machines such as MRIs. The more the machines are used, the bigger profit margin they pack. Meanwhile, reimbursement fees for doctors' visits have stagnated.

'The payment system is so toxic,' says Francois de Brantes, a former health-care program director at General Electric Co. 'Unless you tackle it, any health-care reform doesn't have much chance.'

The big problem, however, is that Aetna only accounts for about 10% of Virginia Mason's revenue. So,

Virginia Mason's move is a gamble. Only Aetna, which accounts for 10% of the medical center's business, has adjusted fees to reward its more efficient care. Seattle's two biggest health insurers, Regence Blue Shield and Premera Blue Cross, haven't matched the move so far. Medicare, despite its own experiments, doesn't have the flexibility to change its payments for one hospital -- and it accounts for a third of Virginia Mason's business.

Thus, it is not clear whether this radical experiment will work. It does demonstrate that some clear, honest thinking exercised simultaneously amongst health care professionals, leaders of academic medical centers, insurers, and employers can come up with reasonable solutions to wooden-headed reimbursement. Of course, such solutions may rapidly become unpopular with those who will make less money as a their result.

But give the Aetna, Virginia Mason, their leaders and health care professionals, and local employers a lot of credit for clear thinking and the willingness to go against the prevailing dogma.

The Thousand-Dollar Toenail Clipping

Acccording to the Associated Press, Virginia Mason Medical Center in Seattle is now facing a class action lawsuit over its pricing policies. It began when Lori Mill had her toenail "clipped for fungus" at the medical center's downtown Seattle site. Her bill was $1133, including $418 for "miscellaneous hospital charges." The medical center justified these charges because its downtown complex is "licensed as a hospital," and hence "authorized by Medicare to charge higher fees."
A report in the Seattle Times showed that the medical center's physicians had previously complained about these charges. One physician, who himself had a procedure there, was charged more than a $1000 facilities charge. He wrote, "I call it obscene. There has to be some sense of appropriateness/fairness/reasonableness to our charges." Another doctor wrote on behalf of a patient charged a $754 facilities fee, "These charges are not only excessive, but an embarassment to me and the medical center."
This is yet another story about hospitals and medical centers charging fees that on their face are far more than the services rendered were conceivably worth. Why don't cost cutters target such fabulous fees, rather than the ever-shrinking reimbursement that generalist and cognitive physicians get?
(Note that Medicare is slated to cut all physicians' fees by 4.3% next year, while it raises the premiums patients pay by 12%. But such a cut, imposed on reimbursements that have not kept up with rising overhead rates, may drive some generalist and cognitive physicians out of the Medicare program. [See article in Philadelphia Inquirer here.] Yet apparently Medicare sanctions thousand dollar fees hospital fees for clipping toenails.)