When everyone has insurance what will happen to hospitals’ not-for-profit status?

Undeniably, the most important advantage of a hospital’s not-for-profit standing is the tax-free status that it grants.  Save for very few exceptions: no taxes on income.  None on property.  Most significantly no tax on bond-issued debt.

The reason hospitals are granted not-for-profit status by the IRS is because they are considered charitable organizations.  A charitable organization needs to provide charity; in hospitals charity usually consists of free care provided to patients who can’t pay.  Community benefit also exists, but few agree on how exactly to measure the financial commitment of such considerations and that makes its charitable contributions murky.

As we move closer to health care reform and decide upon what that reform will look like, one reality is rising to the top: we need to insure everyone (even the insurers are game on this point).  Charity care will no longer be necessary when all Americans have insurance.  So what then will happen to hospitals’ not-for-profit status?  More realistically, what will become taxable?

It’s unclear what exactly a new taxable status would hold except that hospitals would not be required to provide charity care.  What would become taxable?  What happens to charitable donations?  Would it prompt hospitals to privatize?  Access to capital is a big consideration and would it require organizations to become publicly traded in order to raise funds (research concludes capital is cheaper in the not-for-profit setting)?  Widespread hospital IPOs don’t seem like such a palatable reality to those currently leading health reform legislation.

The most probable answer is the creation of a hybrid status where taxes will be levied on profits and property but access to tax-free debt will remain.  Charitable hospitals have become an American institution; some (many?) may have real concerns with all hospitals becoming privatized.

If hospitals want to run their operations like business, complete business, taxable status may be the consequence.  And since 501(c)(3) status prevents these organizations from doing any kind of lobbying activities…they won’t have much say (that may be naive).

Aside: The Congressional Budget Office released its extensive thinking on health reform possibilities recently.  Discussion of taxable status may be amongst the 400 pages but I haven’t had a chance to comb through.  Here’s a quicker rundown from Health Care Policy and Marketplace Review.

(ht: Scott Snyder and our daily back-and-forths)

Solution: Performance Contracting (taking the cue from education)

While nearly all American institutions are in a state of flux, two are worth highlighting: public education is failing and health care is floundering.  It could be said that one suffers from too little money, while the other suffers from too much.  Striking then are the similarities between the two’s troubles.  How to define quality?  How to define performance?  How to improve (everyone has an opinion)?  How to attract the best and brightest?  How to combat shortages?  Caretaker or improver?  Penalize poor performance or provide more assistance to difficult situations?  More government involvement or less?

Performance contracting is one proposed solution.

Michelle Rhee has been getting a lot of press lately.  Deservedly so, accounts of her story have been remarkably positive.  Rhee has taken over the failing Washington D.C. public school system with every intention of turning it around.  A big part Rhee’s plan is hiring the best teachers.  But how to do that?

The New York Times Magazine released its Year in Ideas issue, Rhee’s two-tier teacher contract was highlighted:

The basic deal: surrender some job security in exchange for the potential to earn a much higher salary. Under the proposed contract, each Washington teacher would choose between two alternatives. The red tier, the more cautious option, would require teachers to give up a few seniority protections in exchange for a considerable pay increase. Teachers choosing the riskier green tier would lose even more tenure and seniority rights. They would spend the first year of the new contract on probation, at the end of which they could be fired. But if they were good enough to survive, they would receive huge raises, before long earning as much as $131,000 a year in salary and performance bonuses, more than twice the average salary for an American public-school teacher.

But the application of pay for performance isn’t just for individuals within the organization, it can be applied to the organization as well.  Take this example from Ohio’s tertiary educational institutions (provided through the Columbus Dispatch):

State colleges would need to prove that their undergraduate students are getting ahead to receive full state funding under a new proposal making its way through the Ohio Board of Regents.

Now, state funding is based on a college’s size. But within four years, more than 30 percent of the money for four-year schools could be based on their performance. For community colleges, a 30-70 split would happen in 2015.

“We’re moving from rewarding schools for the number of students in their seats to the number of students completing courses, degrees and walking out the door to get jobs,” said Bruce Johnson, president of the Inter-University Council, which represents the four-year schools.

It makes sense.  Paying physicians and hospitals strictly upon the number of procedures performed is an archaic approach.  Some measure of performance needs to be added (and rating the complication of a case isn’t one).  Medicare, ever our favorite payer (a mover and shaker, nonetheless), is moving in that direction.  As value-based purchasing (pdf) gains traction with government bureaucrats (and corporate America) it would behoove the health care delivery sector to intensively explore performance contracting.  Hospitals will go first, physician payment is sure to follow.

Health care is not going to escape the era of pay for performance.  It’s really not too foreign of a thought: get paid according to how well one performs.  But debates of what exactly constitutes high quality holds the discussion from moving ahead.  The discussion then, in earnest, needs to begin.

Getting past transparency as punishment

From The Plain Dealer:

“I’m very upset about it,” said state Rep. Linda Bolon, a Democrat from Columbiana County, who said her father died from a hospital-acquired infection three years ago.

As she should be.  The Ohio legislature created the Hospital Measures Advisory Council in 2006 to work on transparency:

A state panel in August recommended a long list of measures that would add Ohio to a growing number of states requiring public disclosure of hospital infections. The proposal also gives consumers important information about whether hospitals monitor hand-washing among staff, whether workers are vaccinated against flu, and how well facilities staff infection-control programs.

However, the Ohio Hospital Association has recently backed legislation that threatens the “milestone effort to inform consumers about certain hospital infections and whether facilities follow practices to reduce infection rates” and “gut the proposal and hamstring the panel from making future recommendations.”

Troubling.  We need to get past the perception that transparency is going to hurt hospitals.  It will hurt bad hospitals.  Transparency will only aid quality improvement efforts.

Cost Cutting America: from the blue collar trenches to the corporate world

The venerable Reader’s Digest took a shot at health care cost cutting a few months back.  They have some good ideas (although mostly what we’ve all heard before, still worth the read): manage chronic conditions, improve quality, e-prescribe, collaborate more often, etc.

RD also takes aim at individual behavior (personal responsibility!!): pay workers for healthy habits, use retail clinics for the small stuff, set health goals and make them public, visit physicians virtually, …

The best, though, is the magazine’s plan for making thinking healthy a habit: our schools.  RD says we need to reward healthy eating, rescue recess, and expand gym class.  They very correctly note that today’s generation of children has a real risk of living shorter lives than its parents. There is plenty of room for local health care organization community involvement at school.

It is striking to listen to/read the number of pundits (professional or not) suggest ways to start fixing health care…and yet we lack widespread concentrated efforts on taking action.  Maybe we need a national agenda with a health care czar (it’s a nation of czars, now) to spur the movement (the proverbial nudge) and incent action.

On a related note, The McKinsey Quarterly reports (free reg. req.) that we (USA) overspend on health care by $650 billion annually.  The biggest culprits: outpatient care ($326 billion), pharmaceuticals ($98 billion), and administration ($91 billion).  Again, nothing Earth shattering but plenty of opportunity for transformation.

Consumerism: Patients Need Partners

Recent reports have been gloomy on the consumerist movement in health care.

The Center for Studying Health System Change released a report recently that indicated today’s patients still find physicians how they used to: through word of mouth and referrals from other physicians.  Patients have also used quality and price information sparingly to aid in health care decision making.

The WSJ Health Blog highlighted (another CSHSC) report that concluded the number of patients who have utilized retail clinics “turns out to be modest.”

What’s going on?  Three possibilities:

  1. Patients are still spending someone else’s money (all health care dollars flow from households, but patients never actually touch it and don’t have the ability to use the cash in another fashion, as they say: perception is reality).
  2. Resources to compare quality and price information are slim (but growing).  We don’t agree on what constitutes quality (metrics or outcomes or patient experience) or how to report price (charge or cost, discounted or not?).
  3. Trust is still a factor.  This interweb thing is still relatively new…especially to health care.  Could it be that patients still trust their personal (mostly offline) networks more than an online network (which, by the way, seems the way people will find physicians: through online networks (word of mouth) accompanied by data)?  It should also be noted that the majority of patients utilizing health care services today are older and thus, much less likely to be comfortable with depending upon online resources for decision making.

A BusinessWeek article highlights consumerist proponent Regina Herzlinger and her approach to health care reform.  The article states that Herzlinger’s ideal world would contain:

  • Consumers tailor their own health-care coverage, navigating in a national insurance market.
  • Everyone must buy insurance, and the federal government maintains strict oversight to ensure price and coverage fairness.
  • Small, disease-specific hospitals care for patients who don’t need all the services offered by medical centers.
  • A national database contains the prices and outcomes for procedures at every hospital and clinic, so consumers can make informed choices.
  • Individuals get generous tax breaks to buy their own insurance, with subsidies for those with low incomes.

Here’s the important part:

Herzlinger doesn’t want anyone but consumers managing. Only then, she says, will innovations be unleashed that improve quality. “People can choose from 240 models and makes of cars pretty intelligently,” she says. “Why do we assume they can’t do the same when it comes to their health?” She notes that her suggestions are “relatively low-cost,” which makes them even more attractive given the financial crisis.

The idea sounds good in theory (and it may prove to be the solution in action).  But, as of right now, this young movement has failed to truly take hold (young is the operant word, here).  There are likely multiple causes, but the most significant is this: health care is complicated.  That has not, and will not, change overnight.  We have normative behaviors that have been ingrained since the beginning of modern medicine and that, very basically, takes time to change.

Although somewhat controversial, programs being offered by companies like OptumHealth (a subsidiary of UnitedHealth) can act as the perfect bridge into consumer-driven health care in situations that allow for analysis and discussion.  These companies provide free assistance to patients and families when they seek treatment by helping them assess quality (there are some concerns, rightly so, that an insurance company particpating in such decision-making may have a conflict of interest).

From the Minneapolis Star Tribune:

… OptumHealth and a variety of competitors are compiling sophisticated report cards that rate hospitals and medical centers by critical measures such as staff expertise, patient mortality, outcomes and cost.

Their reach is huge and growing. OptumHealth alone serves some 40 million health plan members and managed 5,000 transplants last year. The national Blue Cross and Blue Shield Association, with a similar strategy, covers 100 million people.

Their conclusion so far: Given a choice and guided by an expert like Imig, patients generally will head for the highest-quality center, even if it turns out to be far from home, friends and family.

Talk to any physician; no one expects or wants individuals to be self-diagnosing even though information is available on every disease and treatment options.  The same goes, at least for now, for quality and cost data: patients need partners.

The Opportunity of the Challenge

Challenging times hold great opportunity.

The Health Care Blog has Amanda Goltz’s review of last week’s Institute for Healthcare Improvement‘s National Forum on Quality Improvement in Health Care.  Among her criticisms is a lack of provider participation in Health 2.0:

The fact that the session billed “Geeky Trends for Experts” is just a basic overview of tools that other industries have been using for a decade tells us something about health care. Patients are the exception here, as they are well-organized on the Web and growing, but as long as hospitals, physician groups, insurers, quality officers and safety improvement organizations remain so behind the curve, patients’ ability to leverage the Internet to manage their health will be limited.

It’s great that one patient with COPD can talk to another about her shared condition, but what about asymmetrical and timely communication with her doctor about a new medication? Or what about instantaneous notification to her case manager’s PDA if she is away from home and goes to the ED? Integration of values collected through her home health monitoring system into her EMR? Daily podcasts on managing fluids?  A “dealing with your HMO” wiki?

I know all of this is in the works, but we need to do more to create physician and hospital leadership in this area (italics mine). “Build it and they will come” will work with patients seeking advice or shared experiences; it won’t work with overworked, overwhelmed physicians or hospital administrators just trying to keep the hospital financially sound, clean, safe, and in line with mandates to report thousands of metrics to CMS, TJC, Leapfrog, etc.

Very. Well. Put.