My Takeaway from Michael L George’s Lean Six Sigma for Services Part 2

Using the Voice of the Customer



Aligning corporate strategy with LSS
The flow from high-level strategy to individual projects requires an understanding of where and how value creation.


Some definitions:
Economic Profit% = % change in Return on Invested Capital – weighted % cost of Capital
Economic Profit = Owners Earning / Invested capital = (Profit after tax) – (3 year average CAPEX)
+ (D&A) – (Increase in working capital)
Process Cycle Efficiency = Value added time / Total lead time
Lead Time = Amount of WIP / Average completion rate
Waste Driver = (Total Demand) x (Set up Time) x (No. of different offerings) / [1 – (Defect Rate) – (total demand) x (Processing time)]
Capacity constraints limits output whereas a time trap causes the longest delays in the stream

My Takeaway from Michael L George’s Lean Six Sigma for Services Part 1

Basics
Similarity
• Both Lean and Six Sigma (SS) help reduce process complexity.
• Both are data driven and measurable and have a framework for effective problem solving
• Both need to be supported by people (from top to bottom) and culture
• Both reinforce each other such that return on invested capital ( goods and people) is faster compared to what is achieved if anyone is implemented
Dissimilarity
• SS recognizes the variation in process that hinders consistent quality outcomes
• Lean centers on identifying and eliminating waste (non value adding) activities and improve the flow speed
• SS is prescriptive in its approach whereas Lean is more inrospective not mandating where the voices of the customer must be included.

There is a preconceived notion that both SS and Lean are only for manufacturing, however that is far from real. In service applications, costs that add no value to the customer are higher than in manufacturing in terms of percentage and absolute dollar value. Because, manufacturing used both these methodologies were widely, the terminology like WIP, workstation turnover, pull systems etc appear to have no meaning for people from services industry.
Why services are replete with waste:
Service processes are slow. Slow processes are usually expensive and prone to poor quality. A service process is usually slow due to wait and queuing. Lack of information, multiple decision loops, and red tape are common waste generators.
Lean Six Sigma (LSS) is about getting rapid results, which track to the bottom line in support of strategic objectives. It allows organization to leverage cost, quality and speed rather than making a tradeoff between them.

Core elements of SS
A powerful SS concept is that the outcomes of a process are a result of the inputs to the process. Y = f(X1, X2, X3,,, Xn). A deeper meaning to this equation is that the LSS team must discover the various Xs that will actually alter the outcome Y. A promise of SS is that one full time Master Black Belt will be able to generate $500,000 worth of increased operating profit per year. To facilitate a SS project, basic requirements include the involvement of senior management, essential workforce training, resource allocation, and reduction of the variations in the CTQ (Critical to Quality) requirements of the customer.
A handful of terms
Lead-time = Amount of WIP/Average completion rate (Little’s Law). WIP can be emails, calls, orders etc. Reducing WIP cost mostly intellectual capital whereas it takes investment capital to alter the completion rate (Usually used when the work involves a direct customer handling. Customers are not the same as Things-in-Process and often show unpredictable patterns in demand).
Delay (Q time) = Time for which a task sits waiting to be worked upon
Value add / non-value add = any work that the customer will pay for is value add. Anything else is non-value add (waste). Long set up times are also non-value adds.
Process efficiency = Value add time/Total lead time
Core elements of Lean
Most processes are “fat.” One mechanism of controlling lead-time is to reduce WIP. Every process should operate on pull to eliminate variation in lead-time. Each organization needs to create its own pull system. Pareto’s principle of 80/20 is valid. Only work that is visible (data based) can be improved. In services, it is difficult to draw out the process and even more difficult to judge the amount of WIP. A good example of such an activity is the set up time or bring lock in period in moving from one task to the other.
High velocity of an object through a process does not reduce quality because the speed comes by reducing wasteful activities and not the key steps. A lean service process typically is one whose value added time is at least 20% of cycle time.
Why do they need each other
It is important to note that speed and cost gains from lean can instantly be erased by an increase in variation leading to WIP and lead times.Conversely any process (even the near perfect ones) will eventually become slow, cumbersome and coslty if it is not continuously tuned for reducing waste.

Addressing Quality in Health Delivery Part 2

IV. ELEMENTS OF QUALITY IN A PROVIDER SETTING

Within a provider setting, quality can be scrutinized in a number of functions.
1. Information Management – Any judgement is only as good as the information on which it is based. Healthcare is no exception. Disparities in provision of care can be minimized by carefully managing information. Some of the ways are given below[5]
a. Stratify clinical performance measures according to socioeconomic/ethnic disparities
b. Make information available for public reporting
c. Synchronize data collection efforts
2. Create an alternative for fee for service - The fee-for-service payment system in the United States leads to more care, but fails to create high-quality and efficient care. Some of the alternatives include
a. A new payment model based on a set of severity adjusted evidence-informed case rates (ECR). Risks maybe categorized as [6] –
i. Probability risk (Based on the likelihood of a negative event not controlled by the provider). Example: genetic makeup of the patient. This will be the financial responsibility of the insurer
ii. Technical risk (Providers responsibility). This includes readmissions. One of five Medicare beneficiaries discharged from the hospital is readmitted within 30 days, and half of non-surgical patients are readmitted to the hospital without having seen an outpatient doctor in follow-up [8].
3. Eliminate process waste through Lean management initiatives – The core idea is to replace waste with value. Value is defined as the capability to deliver exactly the (customized) product or service a customer wants with minimal time between the moment the customer asks for that product or service and the actual delivery at an appropriate price [11]. The key here is that value must be defined from a consumer perspective.
In sum, all quality endeavours point to incremental and sustained integration between interfacing entities in the healthcare provider space. Let us talk about the each of them in brief.
V. INFORMATION MANAGEMENT

Information has to be managed from creation to archival such that it is accurate, contextually relevant, and available in a timely manner. Only such information is of value. Example - Clinical performance measure is a subtype of quality measure and captures data on access, outcome, patient experience, process and structure during episodes of care. Non clinical data such as master patient index are also to be managed with care.
Pros
1. Quality measures are used for process improvement, higher accountability and research
2. Avoid repeat therapy. This is especially valuable in case of indigent care and charity care
Cons
1. Even though these data are collected by institutions they are largely for private use. Public sharing of such information is neither mandated nor voluntarily offered. The reason is that this genre of information is considered to be of competitive advantage and fiercely protected by the providers.
2. The physicians perceive that every patient with associated medical conditions is unique. The nature of relationship between physician and the hospitals are contractual and there are not enough incentives for the physicians to devote additional time towards such initiatives.
3. Data collection puts additional strain on human and technological resources. Smaller institutions may not have the resources to bring in these practices
VI. PAYMENT REFORM – BUNDLED PAYMENT
At the very heart of integrated care is the bundled payment. It would mean more collaborative care. Bundled payments provide a single payment to both hospitals and physicians thereby creating the need for synergy between hospitals and physicians.
Pros
1. 180 degree turnaround on the current mode of payment. Hospitals and physicians, currently paid on separate fee schedules, would now have financial incentives to collaborate and work together.
2. Is likely to bring down the number of readmission through shared accountability
3. Will pave the way for unified billing
Cons
1. Likely to cause a disruption in the current system. Adoption will be slow and recalcitrant. Needs the cultural change of “putting patients first”.
2. Will encourage more hospitals to have physicians on salary and will be resisted by the older generation of physician community. Smaller physician(s) or groups will eventually be driven to join larger groups
3. It is possible that short term cost cutting initiatives will result is degrading the value offered to patients resulting in delayed access.
The Medicare Payment Advisory Commission has created a policy path to transition to bundled payments. This includes [13] [14]:
1. Phasing-in various aspects of bundled payments first, to providers who are fairly well integrated, and then slowly encouraging other providers to adopt the payments.
2. Capture and share service and resource usage data
3. Adjust payment based on resource use over an episode of care on select conditions (acute care)
VII. LEAN MANAGEMENT

Lean is an innovative philosophy that can be applied to the health delivery processes to sustain operational quality and address socio technical issues. Operationally Lean management provides better organization, increased productivity and reduced waste – all encouraging process improvement by reducing process variation. The technical risks or artificial variability has a lot to do with the efficiency of health delivery and often contributes to “waste” in the system.
In the healthcare world, there are multiple definitions to value. The administration may have interest in the quality adjusted life year value while the physician may concern himself only with the clinical value. According to Lean the value is an inherent property of the system at work bounded by design and not by the individual talent or will. Lean initiatives are at the heart of Integrated Care Programs or Pathways.
Pros
1. Artificial variability related to controllable factors is minimized in the design and management of healthcare systems. One example of artificial variability is medication management.
2. By balancing operational and socio-technical aspects of Lean, exponential improvements are possible. Value stream analysis is a good way to make sure the process and the people performing the process are aligned.
3. Will naturally help the evolution of integrated pathways for care and administration
Cons
1. Natural variability of the process is caused by the fact that no two patients are identical. This has to be recognized while applying Lean management in healthcare.
2. The practice of Lean thinking could negatively impact the population of healthcare workers. WHO data suggests there are about 6-7 million healthcare workers in the US including, pharmacists, midwifes, physicians, nurses, lab workers, management and support workers. This can be pre-empted by fostering a culture of Lean and managing change responsibly.
3. Will need information standardization and sharing
4. Healthcare professional are trained to be fiercely independent and need to be aligned to the merits of collaborative care and working in an interdependent environment.
5. Qualified leaders and managers that foster creation of an environment of collaboration are scarce. This manpower is vital for success.
6. Lean is not a piece meal approach but system wide. So it requires top level endorsement. The senior management must trust Lean to increase value for the patient and drive profits.
Socio-technical aspects of Lean - Lean interventions have the potential to make jobs simple and accurately repeatable. Simple jobs may not be found to be challenging enough for highly trained physicians. Lean interventions may also give rise to jobs that require more thinking, planning and responsibility which may be resisted by workers depending on the nature of employer-employee relationship.
VIII. POLITICS AND POLICY OF REFORM – NOW AND ROAD AHEAD
A Commonwealth Fund survey shows the following [19]
1. 70% of the opinion leaders think that the fundamental payment reform is at the root of meaningful reform
2. 62% of the leaders feel that fostering integrated health delivery systems is the most effective way to bring down healthcare costs
The HITECH act is a great example of what the government can do to empower the health delivery systems to build quality in their domain. In the current reform drafts, the president has set a target of 155 billion in costs saving from the hospitals that translates roughly to about 2.6 million per year per hospital in cost savings. Interestingly the hospitals CEOs are upbeat on achieving this target using a variety of methods including Lean [18].
From 1912 till today there have been several attempts at tactical health reforms. These have not been strategic successes because they have been at odds with the core interest and benefits of the Americans at large. In my view, a high level roadmap could be as follows:
1. Bring on payment reform through bundled payments. Government must help providers to structure themselves to adopt the new payment mechanism. Hospitals will play along if they are incentivized as with HITECH Act to work in a collaborative model. It will bring up new models of nurses-physician-hospital/group engagement.
2. Create incentives to adopt integrated delivery systems with targets to reduce adjusted cost per episode of care, year on year. The government will struggle to make this objective and set up outcomes reporting mechanism.
3. Create health exchange to share information from both insurance and provider. It will have ample support from consumers and insurers, who will begin to enjoy more choices among providers. Hospitals will drag their feet because it would means sharing of competitive information. They will come along as they see its merits in providing indigent care. The government will have the opportunity to conduct evidence based research using this data to arrive at setting national levels of care and reimbursement guidelines.
Some of the factors that can aid the reform can be
• Continued tort reform like putting a limit of the economic damages
• Decrease “morale hazard” by getting the consumers to have a stake in keeping the cost of healthcare spending down (perhaps through health savings accounts)
• Putting a cap on the administrative costs of insurers.
The steps above is likely to result in reduction of redundant therapy (repeat imaging services), address over-reimbursements issues, expand the scope of practice for non physicians, reduce medical errors and create incentives for preventive medicine. Subsequent to the quality based reform, the government can proceed with legislations to increase coverage and introduce public option. For now moving the reform on the quality angle allows us to keep the value of healthcare proportional to the cost – a proposition that will resonate with the most Americans.

IX. REFERENCE
[1] Socialism vs. Capitalism: Which is the Moral System? On Principle, v1n3 October 1993 by: C. Bradley Thompson. [Available] http://www.ashbrook.org/publicat/onprin/v1n3/thompson.html

[2] Public Health Then and Now January 2003, Vol. 93, No. 1 | American Journal of Public Health by: Beatrix Hoffman, PhD [Available] http://www.ajph.org/cgi/content/abstract/93/1/75

[3] About that health-reform cost study Tuesday, October 20, 2009: by Karen Ignagni. [Available] http://www.washingtonpost.com/wp-dyn/content/article/2009/10/19/AR2009101902936.html

[4] Inequality in quality: addressing socioeconomic, racial, and ethnic disparities in health care. JAMA. 2000 May 17;283(19):2579-84: by Fiscella K, Franks P, Gold MR, Clancy CM. [Available] http://www.ncbi.nlm.nih.gov/pubmed/10815125

[5] Lean and Collaborative care at Thedacare. [Available] http://www.leanblog.org/2009/10/lean-collaborative-care-at-thedacare.html

[6] Francois de Brantes: A New Payment Model for the U.S. [Available] http://www.commonwealthfund.org/Topics/Health-Care-Quality.aspx

[7] The Nation’s Health Dollar, Calendar Year 2007: Where it Went? [Available] http://www.cms.hhs.gov/NationalHealthExpendData/downloads/PieChartSourcesExpenditures2007.pdf

[8] New Study: 20 Percent of Hospitalized Medicare Patients Readmitted To Hospital Within 30 Days; Half Rehospitalized Without Seeing a Doctor After Discharge. [Available] http://www.commonwealthfund.org/Content/News/News-Releases/2009/New-Study-20-Percent-of-Hospitalized-Medicare-Patients-Readmitted-To-Hospital-Within-30-Days.aspx

[9] Change the Microenvironment: Delivery System Reform Essential to Controlling Costs. [Available] http://www.commonwealthfund.org/Content/Publications/Commentaries/2009/Apr/Change-the-Microenvironment.aspx

[10] State wise per capita income. [Available] http://www.bea.gov/newsreleases/regional/spi/2009/pdf/spi1009pc_fax.pdf

[11] Application of lean thinking to health care: Issues and observations [Available]: International Journal for Quality in Health Care 2009; Volume 21, Number 5: pp. 341–347 Advance Access Publication: 19 August 2009

[12] Using Measures. [Available] http://www.qualitymeasures.ahrq.gov/resources/measure_use.aspx

[13] Bundled Payment. [Available] http://www.andrew.cmu.edu/user/aspark/policyarea.html

[14] MedPac [Available] http://www.medpac.gov/transcripts/0408_pathtobundling_public_pres.pdf

[15] WHO [Available] http://apps.who.int/globalatlas/dataQuery/reportData.asp?rptType=3

[16] Wikipedia QALY [Available] http://en.wikipedia.org/wiki/Quality-adjusted_life_year

[17] Going Lean in Health Care. IHI Innovation Series white paper. Cambridge, MA: Institute for Healthcare Improvement; 2005. [Available] http://www.IHI.org

[18] Hospital CEOs: Reform savings goals doable with lean, Six Sigma, Toyota methods. [Available]
http://www.fiercehealthfinance.com/story/hospital-ceos-reform-savings-goals-doable-lean-six-sigma-toyota-methods/2009-09-10

[19] Commonwealth Fund. Commonwealth Fund Health Care Opinion Leaders Survey, April 2009. HCOL_Slowing_Growth_of_HC_Costs__Chart_Pack_Slides_04242009_PF [Available] www.commonwealthfund.org

[20] AEI Outlook Series: The Politics and Principles of Health Care Reform by Joseph Antos [Available] http://www.aei.org/docLib/11-HPO-Antos-Sept-09-g.pdf

Addressing Quality in Health Delivery Part 1

Abstract: Understand the healthcare reform in the context of the social and economic factors. Analyse the alternatives in the reform and their tradeoffs. Provide a workable framework and discuss its sustainability.

I. BACKGROUND
The current efforts in reform have seen two proposals emerge. Both primarily address the issues around coverage and tried to resonate with American vote bank. This is quite akin to catching a tiger by its tail because the serious cost repercussions associated with addressing coverage is likely to bring on a financial disaster in the near future. A look into the social stratification will help us understand the economic and social preferences of the country.
A. Creation of classes - America has been neither a collectivist (socialist) nor an individualist (capitalist) state. History of America is dotted with experiments in creation of a mixed economy and welfare state - a system that permits private property at the discretion of government planners. As a consequence three classes of people have been created. First - a class that survives on the wealth sourced from the working class - typically includes the indigent and “habitually” unemployed (people who have no motive to earn a livelihood). Second - the working class which is a taxpaying, law abiding segment (includes the non working retirees). Third - a class of government planners and wealthy influencers who are typically at the top of the food chain. [1]
B. Social/Industrial/Economic/Movement – There has been a gap between the healthcare reformers and their political constituencies. So while grass root activism has won minor changes, it has not been able to alter the very nature of the system [2]. The demographics of the patient population, a 500 billion USD insurance industry, vested interests of the members of the Congress to get re-elected, gullibility of the people and dissemination of misinformation by media are some of the factors to be recognized while providing a critical analysis of the health reform.
The raison d'etre of the health reform is to make available a good quality healthcare infrastructure for the people of America and that is possible only when the reform is based on quality frameworks that will reduce cost and make it meaningful for people to get insured. The remainder of the paper will outline one such possible framework.

II. THE ECONOMIC AND SOCIAL FACTORS AT PLAY

The healthcare system today is unstructured and has misplaced financial incentives. The economic theory of “morale hazard” has played out among the players in the current system. As a result the system has been abused by all those who participate in it. Some of the current social and economic factors at work are listed below.
• Social factors
o Aging population, a small percentage of which is consumes most of the healthcare expenses
o Indigent, uninsured and underinsured population resulting in a skewed flow of finances for episodes of care.
o Distorted ratio of care givers between primary and specialty levels
o Providers preferring more number of diagnostic tests to appease patient sentiments and to practice defensive medicine
o Death is viewed not as a natural phenomenon but rather a scientific challenge that needs to be overcome.
• Economic factors
o Cost of care high with respect to outcomes in care rendered in comparison with other developed nations
o Insurance providers have more interest in return on equity than providing indemnity for patients. Currently there are no cross-state plans.
o High cost of medication and lack of medication management
o High cost of education leading to debts that the doctors seek to recover through fee for service reimbursements. The fee-for-service payment mechanism has been recognized as a challenge.
o High cost of compliance for numerous regulations, liability insurance and technology.
o Medication errors, re-admissions and death.
o Declining economy and earnings but increasing sickness is draining the state exchequer.
o Misplaced competition currently focuses on shifting of cost among government, insurer and provider. The competition must be brought back into the provider space so that they are able to bring value to the patients through low cost and high standard of care. This single value driver will give them competitive advantage and consequent market share. Transformation in this segment will positively impact other areas of the healthcare system.

III. STATE OF THE CURRENT REFORM

Coverage Pros
• Requires individuals to have health insurance. It is enforced through individual mandate and by raising the income limit for Medicaid eligibility. Insurance is proposed to be made available through state seeded health gateways or health exchanges. Includes penalties for non compliance and subsidies/exception for special cases
• Employers mandated to offer health insurance or pay a penalty if employee chooses to buy from exchange. Employers to pay at least 60% of the premium.
• Insurers cannot deny coverage on grounds of pre-existing conditions in non group market. Create a high risk pool for all people with pre-existing conditions and cover them through consumer driven co-operatives.
Coverage Cons
• Constitutional hurdle in warranting health insurance as a prerequisite for citizenship.
• Penalty may be lower than the overhead of providing insurance. This could also lead to unintended consequence like retrenching regular employees in favour of subcontractors.
Cost Pros
• No annual and lifetime limits on coverage. Limit on annual spending by the enrollee. Issue community rated insurance plans (premiums charged differ only on basis of age and gender)
• Higher scrutiny of insurance companies.
• Employ payment bundling to contain cost.
• Public option as a competition to private insurance companies
Cost Cons
• Will warrant major regrouping of the insurance companies and the providers. Smaller independent practices will have to merge into larger networks.
• May cause people to defer buying good insurance plans until they become sick.
• Insurance companies will find work around to “cherry pick and lemon drop”
• Younger population likely to pay inflated premiums for coverage not suitable to their circumstances.
• Government run program have historically shot over their budgets [3].
Quality Pros
• Explore bundled payment
• Preventive medicine and evidence based research
Quality Cons
• Objectives are not quantitative and the efforts may not give instant results.
• Unless quality drives are not driven by value directives (low cost, acceptable standard of care resulting in patient well being), it can be counterproductive.
• Hospital and physician services each account for about one third of private healthcare spending [7]. The outcomes do not commensurate to the level of spending seen.
The diagram below depicts a schematic interplay of different actors in healthcare. Though the issues of quality are quite pervasive, this paper will limit itself to the application of quality in the provider space. The problem statement is as follows: What needs to be done in the provider space to ensure every American can get affordable medical care based on their needs (and not on preferences, tastes or wants). In the diagram below, the arrows leaving the rectangle show an outflow of money (Expenses) and the arrows incoming to the rectangle show and inflow of money (Income)

Information Management - Is it Lean?

BACKGROUND
Every organization relies on people, process and technology to carry out business. On a simplistic note, it would be fair to say the people execute the business functions(decision making) by using information made available to them through technology (information process). Organizations may be redefined as cooperative systems with high levels of information processing and decision making at different levels. Hence Information Management (IM) has emerged as an important branch of IT in the recent years.

INFORMATION MANAGEMENT
IM may be regarded as the creation, collection, distribution, storage and retiral of information such that it is made available to the consumer of the information in timely, contextually relevant and accurate form. According to the team that developed the behavioural science theory of management at the Carnegie Mellon University, the desicion making process is mostly sub optimal bounded by the rationality of the user. Considering socio technical aspects in an organization, it may be very expensive and time consuming to have all relevant information available for every decision made. In addition organization culture, rank and structure may prevent rational decision from prevailing. Master Data Management(MDM) is an important part of IM.

MASTER DATA MANAGEMENT
MDM is being recognized as an important activity for oganization wanting to manage their information effectively. All transactional data are tethered to organzation master data. Mostly enterprise system landscape contains a variety of packaged applications from different vendors which means localized master data with different formats and semantics. MDM is not about having a monolithic super database. It is about institutionalizing ownership of data using a software that allow synchronization, deduplication and harmonization of master data from and to different systems. For the sake of performance each packaged application is better off having a copy of the relevant attributes of master data locally. Master data has been traditionally looked at within the individual boundaries of a single application like financial or billing. But as processes begin to span across funcational/departmental lines, it is becomes necessary to have a consistent semantics and accuarate content enterprise wide. Absence of this regimen will lead to inherent inefficiencies. Typically the master data from an upstream application is not contextually relevant to a downsream one in neither semantics nor content and has to be recreated.

DEFINING VALUE - DIRECTIVE FOR LEAN
A lean enterprise is a collection of firms (business partners) involved in the delivery of a service using master and transactional data. It is possible to visualize information as an unit of value distributed intra and inter enterprise through the channels like intranet, extranet and the internet. Information value stream extends beyond the organization boundaries. Lean thinking encourages us to
1. Pull information on demand (Contextual)
2. Eliminate variability and waste in information content by having a golden source (Accuracy)
3. Improve speed of retrieval (Timely)
There is often some kind of a cognitive calculus done in the mind of stakeholder on the value of the information. As with typical Lean engagements the challenge is to establishd the value of information. The key stakeholders and senior management need to understand the value of master data and how it translates into competitive advantage and increased market share.

MDM and HEALTH DELIVERY
A proponent of free market would regard the patient as an unit of market share to be acquired or retained. The most important aspect of patient information is the Electronic Medical Record (EMR). Elements of EMR include master data like patient demographics and patient identifiable information (PII). Hospitals create enterprise master patient index to ensure golden record. It is not uncommon to have upto 30% duplication in patient information in a hospital.
How will the new health reform impact IM/MDM in health delivery.
1. It will be essential to retain and use golden copy of charge master to publish the cost of care.
2. Creation of global patient identifier for interhospital collaboration and exchange of information with the health exchange. The key here is to understand the value of information between different stakeholder groups.
Government - it would mean data for the evidence based research
Hospitals - it will be competitive information
Patient - it means access to medication and charts
Insurance company - it means financial payment.

There is a tremendous potential to get to know the technology needs in the health delivery and how it may be an inadvertent first step towards Lean.

HIPAA– Legal and Technological implications

Abstract: This paper covers fundamentals of the Health Insurance Portability and Accountability Act (HIPAA). Through case studies, it examines some of the practical aspects of administration and enforcement of HIPAA. It makes observations on how EHR (Electronic Health Record) and internet are posing new challenges to the healthcare community.

Keywords — PHI, EHR, HIPAA, Internet, Privacy, OCR, HHS, HITECH

I. EXECUTIVE SUMMARY

HIPAA is separated into two sections.
1. The first is called “Health Care Access, Portability, and Renewability”, It relates to two acts: the Employee Retirement Income Security Act and the Public Health Service Act. This part of the Act protects the insurance coverage of workers between jobs or periods of unemployment.
2. The second is called “Preventing Health Care Fraud and Abuse; Administrative Simplification,” It defines HIPAA offenses, sets penalties for HIPAA violations, HIPAA regulations, and creates programs to control fraud and abuse within the healthcare system. The scope of the paper is limited to this part of act.
A. HIPAA and EHR
EHR is a technology aid for automating (not replacing) activities in healthcare provisioning. It ensures better process control, reduces medication errors and provides controlled access to patient information (protected health information (PHI) and patient identifiable information (PII)) under HIPAA. However the very technology poses new risks like misuse of privileges, vulnerability of systems hacking (frail solutions), poor adoption among healthcare staff etc. This warrants organizations to train their staff and build awareness. This has been a challenge far bigger than what most would imagine.
In the next few years we will see rapid EHR rollouts as a result of the Health Information for Economic and Clinical Health Act (HITECH). This opportunity also presents new challenges to be addressed like stronger penalties, stringent enforcement and contractual ramifications for Business Associates.
B. HIPAA and Internet
Pervasive computing has touched almost all areas of our lives. It has altered the channels of communication and the speed at which information is exchanged. However this presents new challenges too. While internet facilitates instant communication, HIPAA has to do a fine balancing between freedom of communication and right to privacy. Some of points to note are below:
• With growing use of internet, social networking and third party PHI storekeepers, the risk of unwarranted PHI disclosure has increased. It is likely that Google and Microsoft will be liable under HIPAA if the provider community collaborates with them as its Business Associates.
• With changing social dynamics, it becomes meaningful to understand how the ownership of PHI has to be shared by both the patient and the provider. Some alternatives are explored in a search to seek answers for these questions.
The paper ends with a brief outline of enforcement statistics and the road ahead.

II. INTRODUCTION TO PRIVACY

The Privacy Protection Safety Commission states that privacy is a personal and fundamental right to the citizen protected by the US Constitution. Privacy violation results from information misuse arising from unauthorised collection and use of protected individual information. A victim of such a wrongdoing is likely to be impacted by one or more of the following:
• Vulnerability
• Emotionally distress
• Humiliation
• Loss of opportunities.
In an ongoing attempt to uphold privacy, a number of acts have been instituted. Some of them are below:
1. Privacy Act of 1974
2. Confidentiality of Alcohol and Drug Abuse Patient Records Regulations
3. Family Educational Rights and Privacy Act (FERPA)
4. Americans with Disabilities Act (ADA)
5. Genetic Information Nondiscrimination Act (GINA)
6. HIPAA
7. Patient Safety and Quality Improvement Act of 2005 (PSQIA).

III. PILLARS OF HIPAA

HIPAA shifts the responsibility of information privacy from the patients (through simple consent forms) to the covered entities. It addresses several major areas:
• Privacy – Prevent misuse of patient information by safeguards
• Security – Protect information during storage and provide authorised access to patient information.
• Master data – Unique identifiers for interacting entities in a healthcare setting
• Standardization - Industry standard information exchange to reduce manual effort and clerical error.
• Business associate contracts – Important in outsourced services.

IV. PENALTIES FOR HIPAA VIOLATION


1 Offender did not know, and by exercising reasonable diligence would not have known, that he or she violated the law(Ordinary negligence) $100 for each violation, except that the total amount imposed on the person for all such violations of an identical requirement or prohibition during a calendar year may not exceed $25,000
2 Violation was due to reasonable cause and not willful neglect(Ordinary Negligence) $1,000 for each violation not more than $100,000 cumulative
3 Violation was due to willful neglect and was corrected (Gross negligence) $10,000 for each violation not more than $250,000 cumulative.
4 Violation was due to willful neglect and was not corrected(Gross negligence) $50,000 for each violation and not more than $1,500,000 cumulative.


The Department of Justice (DOJ) says that criminal penalties for a violation of HIPAA are directly applicable to covered entities and even its employees (under “corporate criminal liability”). Where an individual of a covered entity is not directly liable under HIPAA, they can still be charged with conspiracy or aiding and abetting. In the HITECH Act HHS is provided with new audit authority to conduct periodic audits and ensure BAs and Covered Entities are compliant with new rules.

The DOJ interpreted the "knowingly" (wilfully) element of the HIPAA statute for criminal liability as requiring only knowledge of the actions that constitute an offense.

V. EXAMPLE - HIPAA VIOLATION –INFORMATION SECURITY
The case discussed below highlights the potential magnitude of the impact of a HIPAA violation.
A. Case
The Federal Trade Commission (FTC) opened its investigation into CVS Caremark following media reports from around the country that its retail pharmacies were disposing PHI into open, publicly accessible dumpsters. The PHI was contained on labels on pill containers. The information included patient names, addresses, physicians’ names, medication and dosages; consumers’ personal information, employment applications, social security numbers, payroll information; and credit card and insurance card information. Simultaneously HHS opened its investigation into the pharmacies’ disposal of health information protected by HIPAA.
CSV was charged with violations for the following
• Lack of sound processes and policies to ensure HIPAA compliance
• Lack of employee training for dealing with PHI
• Lack of internal measures to assess and assure compliance with its policies and procedures for disposing of personal information
• Misleading and superfluous privacy policy statement.
CVS paid HHS $2.25 million to settle the matter.
Discussion: Is CVS a covered entity? Yes it is. Under 1861(s) of the Act, 42 U.S.C. 1395x(s), CVS (Retail Pharmacy chain) provides medical supplies and biological that may not be self administered and that are furnished as an incident to the physician’s professional service. So HIPAA applies to it.
What is the nature of information that CVS failed to handle with reasonable? The FTC press release states that there was sensitive information pertaining to patients and its own employees. It is important to note that patient health information as well as employee medical information falls under HIPAA. CVS compromised PHI and PII.
Where did CVS fail? CVS violated the following tenets under HIPAA even though no discernable harm had been reported
• Security.
• Privacy.
CVS response has included a settlement amount higher than any other payout on HIPAA violation so far.
CVS Caremark made claims such as “CVS/pharmacy wants you to know that nothing is more central to our operations than maintaining the privacy of your health information.” The FTC alleged that the claim was deceptive and that CVS Caremark’s security practices also were unfair. Unfair and deceptive practices violate the FTC Act. Subsequently CVS entered into a consent order with the FTC to resolve claims made by the latter. As a part of the Corporate Integrity Program, CVS agreed to institute a Corrective Action Plan (CAP). It requires CVS, in the next three years, to create processes for
• Correct disposal of PHI
• Institutionalize a training program
• Have a third party audit to certify the effectiveness of the CAP.
A similar example is found in the case against Providence Health and Services in June, 2008.
What is missing? Some of the missing facts that could have given us a better insight into the magnitude of violation are
1. Total number of records compromised
2. Number of locations where the breach took place
3. Number of medical or financial identity thefts following the time span from when the violation has been happening.

VI. EXAMPLE – LACK OF AWARENESS

As the concerns of HIPAA become pervasive, covered entities are reluctant to share information in a healthcare setting. This has been observed to hamper care in such situations. The case below illustrates this point.
B. Case
An emergency department requested the transfer of a 40-year-old homeless man with a history of schizophrenia and psychotropic dependence to a local hospital for undergoing inpatient treatment. In his psychotic state, the patient was unable to sign for the release of his records. The psychiatrist on call requested the emergency room (ER) to send across the test results and relevant records via fax for review before a decision could be made about transfer. The ER nurse refused to fax the records, stating that doing so would violate HIPAA. Furthermore, the nurse reported that even signed consent to fax the records would not protect her against a HIPAA violation. After the transfer was refused, the records were faxed with the patient's name blacked out.
Discussion: This is a case where the health worker was misinformed about HIPAA law. The Act does not forbid transfer of necessary and pertinent medical information to aid the treatment of the patient. Effective training program for healthcare workers is critical to the success of HIPAA.

VII. EXAMPLE - HIPAA AND INTERNET

With rapid adoption of unconventional communication channels, there is a need to re-assess the applicability of HIPAA laws. A few scenarios are presented below with observations.
A. Case: Patient participates in indiscriminate information sharing

Scenario One: The patient uses the hospital communication network (assuming it is made available) to share PHI to friends. Although the disclosure is by the patient but since the communication has happened over the hospital network which is under HIPAA rules, the hospital could be held liable.

Scenario Two: The patient communicates PHI using public internet and posts it on social networking sites. It is expected that patient will be discrete about his PHI. Should PHI be guarded under HIPAA only as long as the patient is not found being indiscrete, similar to the client-attorney privilege?

Scenario Three: The patient maintains PHI with a third party and not a covered medical entity. (For example Google Health). The privacy is guarded solely on the basis of authorised consent given by the individual to the third party and a declaration by the third party to be discrete with PHI. The PHI in this case is not protected by HIPAA regulations. Internet has always been an unsecured channel for storing and transmitting confidential information. Can HIPAA be extended to cover the third parties as well?

Scenario Four: Posting surgery updates on Twitter. There have been cases when the hospital surgeons have used Twitter to post surgery updates. It is likely that the patient would be discovered if the operation was a one of its kind or if it involved a novel procedure. How can we discourage such practices?

Scenario Five: YouTube advertising. In an attempt to avail lost cost marketing channels, the hospitals are seeking consent from patients to post their surgery on YouTube. It is possible that after the advertisement was posted, the patient develops a complication and suffers at the hands of the providers. Yet the advertisement continues to be featured in the YouTube without any mention of the post surgery complication. This leaves the patient traumatized. Even though the law may offer remedy, most patients are easily intimidated by idea of a legal recourse against their doctors, not to mention the time and money needed to go up against establishments.

VIII. ELECTRONIC HEALTH RECORD AND HIPAA

EHR solution is defined as a system of collecting, using, storing, disseminating and destroying PHI.
The challenges of implementing EHR are few but critical:
1. Adoption of technology by healthcare community. Physicians often find it difficult to work with technological limitations. All EHR rollouts need a strong technology change management to ensure speedy adoption. Health workers are notorious for their tendencies to skirt the process.
2. Under pressure to cut costs, HIPAA compliance may be compromised by undercutting features or robustness. This is particularly true when the solution is based on off the shelf products.
3. While EHR helps reduce human error, it makes HIPAA violations easier to commit. This is accentuated by the lack of organizational commitment to train and create awareness.

HIPAA safeguards in the EHR include the following:
1. Seamless integration to the billing system for transmitting EDI (Electronic Data Interchange) messages between payer and the payee.
2. Maintaining secure communication when employing outsourced talent with emphasis on business associate agreements
3. Instituting role based privileges for data access.
4. Proper budget to train and create awareness on HIPAA to avoid attacks through social engineering and breaches due to unauthorized information sharing. It is said that most unauthorized system access are through social engineering, an act of manipulating people into performing actions or divulging confidential information. This is an important point in a highly computerized environment.
5. Having routine and event based audits
6. Having a security officer to oversee HIPAA compliance and putting checks and balances for physical safeguard and back up of storage spaces for PHI.
7. Having technical safeguards for secure information exchange using encryption protocols and data corroboration
8. Implement privacy policies and risk management programs.

HIPAA violations today seldom remain limited to a violation of privacy. It is usually followed with either an identity theft or false claim or both. The case discussed below examines how HIPAA violations are easily committed with EHR solution in place and how it leads to felony. One critical point to note here is that the medical is owned by the covered entity
A. Case: Violation and Criminal Law

Without authorization or approval from United HealthCare, two of its employees gained access to the company’s electronic database and obtained names and dates of birth of certain patients. The patients had Flexible Spending Accounts and were covered by a prescription drug plan sponsored by the Federal Employees Health Benefit Plan (“FEHBP”). The employees used this information to create fake and unauthorized prescriptions. These were then presented to pharmacies to illegally obtain controlled substances. The drugs were then illegally sold to third parties. The defendants caused a loss of $72,746 to the Federal government by making false claims.
Discussion: In this case the defendants were guilty of HIPAA violation because they acquired the patient information and shared it with others who participated in their plan. Typically it would have been a civil case.
However defendants were guilty of identity theft which is a felony and the criminal law differs from one state to another. In the state of Texas, Fraudulent Use or Possession of Identifying Information is a felony whose degree varies based on the number of records stolen.
In addition, the defendants used the information to defraud the federal government by making false claims for reimbursement. Under False Claims Act this amounts to a felony. The defendants got a 10 year prison sentence and 250,000 in penalty.

IX. SOME MORE HIPAA

This section touches upon other areas where HIPAA has an impact.
• Under HIPAA, peer review documents are typically not discoverable. Unless there is a court issued subpoena, the hospital is not required to share the peer review documentation publicly. Peer review is a platform for physicians to discuss negligence and near negligence incidents without inhibition to ensure that patient safety standards and quality of care is consistently maintained.
• Medical records are owned by the covered entity although the patients have the right to suggest corrections to its contents. Providers may be free to use the information for treatment, operation and payment without any consent from the patient.

X. HIPAA AND HITECH ACT 2009

The HITECH Act has put in following checks and balances with respect to HIPAA. The section below mentions the notable areas impacted.
• Notifications in the event of confidentiality breach
• Business Associate liability
• Disclosures of PHI limited to the “Limited Data Set” or “Minimum Necessary”
• Expanded accountability for individuals
• Sale of EHR or PHI
• Limited use of PHI for marketing purposes and fund raising
• Expanded enforcement measures for HIPAA violations
• HIPAA compliance audits
• Business associate liability – The HITECH Act makes significant changes to the HIPAA laws and rules, many of which will impact relationships between covered entities and their business associates
• HITECH will require BAs to comply with administrative, technical and physical safeguard requirements
• BAs are also required to appoint a security official, develop written policies and procedures, and train its workforce on how to protect electronic protected health information (EPHI)
• BAs will now be directly liable under HIPAA for using and disclosing PHI in violation of their BA agreements
• A violation of the BA agreement will subject the BA to the same civil and criminal penalties as a Covered Entity who violates the Privacy Rule
In case of a breach of HIPAA guidelines, the following have been recommended under HITECH
• Perform a “Risk Assessment”
• Do an impact assessment resulting from the breach. This includes extent of misuse and tracking the parties involved in it. Type and amount of PHI involved -can it reasonably cause financial, reputational or other harm?
• Implement Risk Mitigation procedure
• The Covered Entity or BA has the burden of proof in demonstrating that no breach has occurred.
• Strong documentation of the risk assessment vital.
• Individual notification by first class mail required (unless individual has consented to electronic notice). Substitute notice is required if contact info is out of date. For 10 or more, notification must be either posted on website for 90 days or posted in major print/broadcast media for 90 days. Media and HHS notification required for breach involving 500 or more residents of a state or jurisdiction. For cases involving smaller number of breached records, log files must be maintained on an annual basis.

XI. SUMMARY STATISTICS OF HIPAA ENFORCEMENT

The Department of Health and Human Services (HHS) is under the executive branch of the US constitution charged with protecting the health of all Americans and providing essential human services, especially for those who are least able to help themselves. The OCR (Office of Civil Rights) is the primary agency under HHS to receive complaints on HIPAA violations and act upon them. Of the 45,630 complaints received so far, about 80% of the cases have been resolved. During the course of investigation, it has been discovered that almost 50% of the reported cases were not eligible to be tried under HIPAA. This statistics reflects two things
1. There may be gap in how the Act is interpreted. A good number of people do not understand the nuances of HIPAA in statement or spirit
2. There may be a gap in the jurisdiction of the law itself that needs to be addressed in the future.
The top reasons for HIPAA violations have been cited as
1. Unsecured PHI
2. Unauthorized access
3. Inappropriate and impermissible disclosures
4. Unauthorized disclosures
5. Lack of patient access to their PHI
6. Uses or disclosures of more than the minimum necessary protected health information

XII. HIPAA - DOWNSIDE

Restricted access to patient data has its drawbacks.
1. HIPAA has and will continue to have an impact on research as PHI becomes increasingly difficult to acquire. Consent forms have become longer ever since the regulations came into effect. Studies have shown that there is a decline in the participation rate in clinical trials and human research.
2. HIPAA compliance cost money. With static or diminishing healthcare budgets, there is a threat that HIPAA spending could be compensated by a compromise in the quality of care.

XIII. FUTURE – BENEFITS AND ROAD AHEAD

Benefits of HIPAA cannot be over-emphasized. The key ones are:
1. Allows patient information to be securely sent from one provider to another in a seamless and secure way. This will be more effectively felt when the percentage of providers on EHR solution increase.
2. By guarding patient privacy it protects patients from being victims of criminal wrong doings.
3. Patients are very vulnerable when they are in the hands of the providers. HIPAA safeguards ensure that information shared during patient-provider encounters are kept confidential

Its future depends on some best practices and legislations; some of which are mentioned below:
1. Effective training and awareness programs for members of the healthcare community.
2. Recognize that HIPAA is a not a one-time activity. It is part of corporate governance objective.

REFERENCES

[1] David Blumenthal, M.D., M.P.P. Stimulating the Adoption of Health Information Technology [Online] Available: http://healthcarereform.nejm.org/?p=436 , 2009.
[2] Consumer Union Report., To Err is Human - To Delay is Deadly: [Online] Available: http://www.consumersunion.org/pub/core_health_care/011324.html 2009.
[3] HHS Press Release, [Online] Available: http://www.hhs.gov/news/press/2009pres/08/20090819f.html, Aug. 2009.
[4] World Privacy Forum, [Online] Available, http://www.worldprivacyforum.org/hipaa/HipaaGuide3.html.
[5] Center for Democracy and Technology, HIPAA and Health Privacy: Myths and Facts Part 2 — January 2009 [Online] Available: http://www.cdt.org/healthprivacy/20090109mythsfacts.pdf
[6] Augustine Weekly - Holland & Knight HIPAA in Private Tort Litigation [Online] Available: http://www.informlegal.com/articles/view.php?article_id=519, 2008
[7] Press Release, CVS Caremark Settles FTC Charges: [Online] Available 2009. http://www.ftc.gov/opa/2009/02/cvs.shtm
[8] Biometrics Direct, Penalties for HIPAA violation [Online] Available: http://www.biometricsdirect.com/Biometrics/laws/HIPAA/hipaaviolations.htm
[9] American Medical Association, HIPAA Violation and Enforcement [Online] Available: http://www.ama-assn.org/ama/pub/physician-resources/solutions-managing-your-practice/coding-billing-insurance/hipaahealth-insurance-portability-accountability-act/hipaa-violations-enforcement.shtml.
[10] Bryan K. Touchet, M.D., Stephanie R. Drummond, D.O. and William R. Yates, M.D, Brief Report, The Impact of Fear on HIPAA violation on Patient Care [Online] Available: http://psychservices.psychiatryonline.org/cgi/content/full/55/5/575A.
[11] Internet Article, HIPAA Law and Guidelines for Employers, [Online] Available: http://www.hrhero.com/topics/hipaa.html
[12] Internet Article CVS Pays $2.25 Million in Record HIPAA Settlement [Online] Available: http://www.huntonprivacyblog.com/2009/02/articles/hipaa-1/cvs-pays-225-million-in-record-hipaa-settlement/
[13] Comments by World Privacy Forum, [Online] Available: http://www.ftc.gov/os/comments/cvscaremark/540386-00004.pdf
[14] Privacy Rights Clearing House, Chronology of Data Breaches [Online] Available: http://www.privacyrights.org/ar/ChronDataBreaches.htm
[15] Internet Article [Online] Available: http://www.law.uh.edu/healthlaw/perspectives/2008/(NA)%20blog.pdf
[16] OCR website. [Online] Available: http://www.hhs.gov/ocr/privacy/hipaa/enforcement/highlights/numbersataglanceindex.html
[17] U.S. Department of Labor Employee Benefits
Security Administration [Online] Available: http://www.dol.gov/ebsa/publications/top15tips.html
[18] Google Definition [Online] Available: http://www.google.com/search?hl=en&rlz=1R2ADBF_enIN335&defl=en&q=define:Social+engineering+&ei=QfSqSo62B4KntgeEpKDzBw&sa=X&oi=glossary_definition&ct=title
[19] Healthcare Applications and HIPAA [Online] Available: http://citebm.business.uiuc.edu/TWC%20Class/Project_reports_Spring2007/HIPAA/mtmcinto/McIntosh.pdf

Regulating private healthcare Hospitals, Clinics Must Register, Follow Standards

Nirmala M Nagaraj, TNN 26 October 2009, 03:17am IST
http://timesofindia.indiatimes.com/city/bangalore/Regulating-private-healthcare-Hospitals-Clinics-Must-Register-Follow-Standards/articleshow/5161243.cms

BANGALORE: After three decades of lobbying, the private health sector had to finally give in. The final notification of Karnataka Private Medical

Establishment(KPME) Rules, 2009, has been approved by the ministry and has been gazetted in the first week of October. With this notification, now hospitals have to register and maintain the standards as outlined in the notification. The rules are aimed at regulating private medical establishments, including clinics, diagnostic centres and alternative medicine centres to ensure that people get quality healthcare. The new rules stipulate minimum standards in terms of physical infrastructure, technical know-how and staff qualification to set up a private healthcare institution. More importantly, the rules will make it mandatory for private hospitals to display the rate charts. The rule covers all forms of medical practices __ from allopathy, ayurveda, unani to homeopathy. The efforts to regulate private medical establishments in the state began in 1976. Health and family welfare deputy director H C Ramesh said: "Due to lot of pressure from the private medical establishments, regulation was delayed for more than three decades. Now, with the gazette notification of the rules, the Act will be implemented in the state.'' Though there is a list of Karnataka Medical Council-registered doctors, the actual numbers are not known. This was evident during the recent chikungunya and H1N1 flu outbreak __ lack of list of private medical practitioners affected the disease-prevention programme. WHAT DOES IT MEAN? For registration which is mandatory, all private medical establishments __ from clinics to hospitals __ should ensure clean and hygienic surroundings, proper lighting, ventilation, adequate/hygienic sanitation facility, proper maintenance of medical records, standard bio-medical waste disposal system, accessibility to attending doctors and qualified staff appointed in proportion to number of patients treated in a day. REGISTRATION While the registration fee under allopathy for medical clinics is Rs 1,000, a nursing home with more than 2,000 beds has to pay registration fee of Rs 2 lakh. There is concession in fee for charitable and non-profit hospitals. For alternative Indian system of medicine, it is Rs 500 for clinic and dispensary, Rs 2,000 for hospital with 20 beds and more and Rs 10,000 for diagnostic centres with advanced facilities. The registration is valid for five years. Hospitals have to be registerd within 90 days from the date of the Act coming into force. At the district level, a regulatory committee is formed. It comprises deputy commissioner, district health officer and an Indian Medical Association member. STANDARDS From comfortable seating arrangements for patients in reception to examination room having minimum area of 125 sq ft and consultation chambers equipped with basic investigation facilities, standards have been set for the hospitals. "There are several hospitals functioning without basic infrastructure and medical equipment and there are several hospitals functioning without qualified staff. So, we have listed mandatory basic equipment and required qualified hospital staff. Private medical establishments have to display charges to all the services rendered," said health and family welfare deputy director H C Ramesh. QUOTE HANGER We are glad to have KPME rules as this will check quacks. With registration made mandatory, we will get to known as to how many private medical establishments are there in the state. __ Karnataka private hospitals and nursing Home Association vice president P S Premnath There is need for regulation as the environment of accredited healthcare promises patient safety. And the rules need to facilitate reform in the healthcare sector and should be covered by good governance for efficient implementation. __ Wockhardt Hospitals Group CEO Vishal Bali It is a welcome move as the rules will bring in quality, standard and accountability in healthcare. Along with patient safety, it will stop mushrooming of private hospitals without proper infrastructure and staff. It will assure quality players in healthcare sector. __ Manipal Hospital COO and Medical Director Dr S C Nagendra Swamy.

Why does healthcare cost so much

Abstract: We try to understand the nature of spending in healthcare. We will uncover alternativse to rein in the inflationary trend.

I. Background
Over the last several decades, healthcare spending in the USA has steadily climbed. Although several attempts have been made to restrain the trend, none so far (regulation, public programs, voluntary effort by insurance companies, market competition) has had a lasting impact. The problem of healthcare spending is not a singular one and hence does not have a single solution. Unless the challenge is addressed comprehensively, we will continue to see symptomatic and short sighted reforms.
II. Who Pays
Most people believe that it is the government, employers or the business that pays for the healthcare. In reality, it is the individual who eventually pays all and any form of healthcare expense. Following are some of the ways:
· Employers don’t give healthcare benefits as they claim. They merely set aside a part of employee compensation (Cost to Company) to pay for the health insurance premium.
· Government collects taxes and funds its Medicare and Medicaid program. It is uses a number of channels like
o Income tax - FICA (Federal Insurance Contribution Act), Federal Tax, State Tax (not applicable in Texas)
o Sales tax – controlled by states on goods and services purchased.
· Patients pay additionally through deductible, copayments and other out of pocket expenses
III. Why does it cost so much
A brief analysis of soaring healthcare expenditure is presented below.
· In a typical care transaction, the consumer of medical services is not the payer. The patient does not know the cost of an episode of care and hence does not care. As a result the patients have no interest to monitor their spending or to maintain their health through preventive care programs.
· Patients want the best and the latest and not value-for-money. When it comes to healthcare, less expensive medical services or drugs are often perceived to be of inferior quality.
· Multi-payer system builds in inefficiencies and cost (claims processing, management overhead, and administration) that translate to higher premiums.
· Medical innovation raises cost of care. America is responsible for leading the majority of the medical innovations and path breaking research for the rest of the world to follow. However when new procedures and medicines are invented, the companies try to recover the cost of the innovation through high pricing. When patients want the most advanced medical care available, they land up paying more. The pharmaceutical companies charge more for their drugs in America. There are 3 reasons to it
o Novelty factor – The new drugs are marketed only in America for the first few years and are aggressively promoted.
o Drugs patents lead to market monopoly and high prices. There is no government control in determining the market price for the drug.
· Healthcare is a “superior” good. It means that those who can pay higher premiums demand disproportionately higher levels of care. Senior executives in Goldman Sachs who have $40,000/year “Cadillac” plans will demand five star hospital suites and state of the art services. However we must examine the rationale of providing the same level of care/luxury (not to be mistaken with outcome of care) to those having simple $8000/year insurance plan.
· A significant part of the national health expense is due to an aging population (Baby boomers) who have greater episodes of care and greater number of co-mobilities (meaning more complications and more cost of care).
· The uninsured either utilize emergency services or postpone their treatment. Using trauma centres to address routine illness is expensive for providers. They recover this cost by charging their insured patients more. Postponing medical care eventually leads to complication and warrants more expensive care being required in the future.
· Shifting care. Medical care has shifted from primary physicians to specialty caregivers and from in-patient to out-patient setting. Both have ramifications. Specialty care givers charge higher fees for the same service that could have been provided by the primary care physician. They will also be inclined to recommend higher number of high end test and procedures. With rising demand for out-patient services caregivers have invested in infrastructure and facilities. This cost is reclaimed through inflated fees.
IV. What may be our position to rein in cost
Each point in the previous section may be looked in greater detail for areas of improvement. For this paper we will focus on some of the most important ones.
· Empower primary care physician to treat patients for more medical conditions. Incentivize caregivers to keep patients healthy and not make money through a barrage of tests. Resolve the inequality in the number of primary care physicians and specialists. Put moratorium on building new speciality units.
· Encourage consumers to get value-for-money treatment and drugs. Encourage Health Savings Accounts (HSA). Mandate employers to put their contributions to the HSA and not combine it with the compensation. Exempt taxes for contributions to HSA. Get individuals to be aware of how much their cost involved in each episode of care.
· If insurance is mandatory, then allow the insured to purchase plans that where they will decide how to spend the indemnity value (how much for inpatient, drugs, dentist, diagnostics etc). This will motivate people to seek insurance and spread the risk. Regulate insurance sector to become not-for-profit. Mandate the insurance to do away with pre-existing conditions and denial of care.
· Regulate the drug companies by fixing price of drugs. Offer patents only for radically new drugs - the ones that enhance the quality of life significantly and not those that are mere alterations at a molecular level causing marginally higher benefits than an existing or substitute drug.
In sum, healthcare cost a result of interplay of several factors and must be dealt with holistically.

Issues with employer based health insurance

Abstract: We try to understand why current healthcare system threatens to crush the employer based insurance in the context of the changes in the industry. The brief gives the pros and cons and some suggestion as to what can be done to put it back on course.

I. Background
Modern employer based insurance emerged as a fringe benefit during the Second World War when the government implemented wage and price controls in private industries. It went on to become a dominant model of US mode of healthcare finance when the government allowed companies to get tax deductions for the expense of paying for insurance premium (IRS provision). The government did not tax the employees for receiving the benefit but the taxpayers were not allowed to deduct the cost of insurance if they got it on their own. The largest decline in the employer based health insurance was seen since the 2000s. However, even today, when employer based healthcare is under criticism, a high percent of the working individuals in the private sector are offered some form of health insurance financing through their employers (around 160 million people, 60% of the under-65 population).
II. Milestone legislation
Some key laws passed in the pass that were relevant to the employer based healthcare
· ERISA (Employee Retirement and Income Security Act) which did not mandate an employer to offer health insurance but instead regulated their plan only if the employer chose to provide one. A provision of this law allowed employers to escape state regulations and allowed them to directly pay for health benefits through self insurance. Self funding reduced employer overhead. It however undermined the broad risk pooling (A practice of pooling large number of people for health insurance plans which facilitated inclusive, inexpensive coverage). Smaller employers looked at the notion of consortium using MEWA (Multiple Employer Welfare Arrangements). This had the inherent risk of employees leaving the cooperative and causing an adverse selection bias.
· The proposed Health Security Act was perceived to be extremely complicated and government intrusive and was not passed. However, it gave rise to the idea Medical Savings Account. Along with variants like Health Reimbursement Account and Flexible Spending Account, these allowed for the employees to manage their own insurance accounts with some restrictions.
III. Employer Challenges
Healthcare has changed in terms of how much the medicines cost and how much it can do.
· Rate of rise in healthcare spending has outpaced the rate of rise of income, productivity and inflation.
· Advances in medical technology and drugs have given the ability to combat diseases and conditions (especially heart disease, cancer and stroke). This along with decline in tobacco use and increased cholesterol awareness has led to higher longevity.
· An aging population with higher episodes of care result in higher healthcare spending
· The insurance cost that was about 2 % in 1960 is now more than 10% of the compensation and the employers have to grapple with that reality.
· The healthy and young, working age population is opting to not have insurance reducing risk spread.
· Group premium is based on the claims experience – that is, the health history — of just that small group of employees. This is a nightmare for small companies.
IV. Employer Response
The employers had relied on managed care to keep the cost of healthcare down. Later they pulled back from it and shifted their efforts on imposing more cost sharing on individuals and creating plans that involve more management of disease and conditions. This included higher deductible, higher copayment, payment incentives to insurers for preventive care and disease management. Clearly these strategies have failed and the system is badly bruised.
V. Pros and Cons
· CONS of employer based insurance
o Can't move your insurance around. Locked into jobs that people may not necessarily want to keep.
o Employees can't see the stresses on the health care system because the employer is paying the premiums.
· PROS of employer based insurance
o Employer gives you a risk pool to buy into. Not rejected for pre-existing conditions or poor health.
o Employer contracts out with insurers, offering more choices, at a lower price, and with an administrative buffer - an HR person to turn to if the going gets rough.
o Employer offers an easy, centralized access point to the system. and give individuals a way to pool their purchasing power for better prices and treatment
o Lead the spread of wellness and prevention-focused programs, the management of chronic diseases, and the use of incentives to medical providers for better performance – these elements are not found in public programs like Medicare and Medicaid, which focus on reducing payments to providers
VI. Alternatives and Conclusion
We need not create a new world order but an intelligent restructuring and realignment of employer provided insurance.
· Health insurance “connector/exchange” that will match buyers and sellers, collect premiums and bill employers.
· Promote consumer directed portable health savings or reimbursement accounts. This allows employees to be informed about the cost of the healthcare. Alter the perception that health care costs only $10, (Copayment).
· Mandate employer based healthcare. Companies stand to benefit from a healthy workforce. Mandate preventive care programs via employers.
· Mandate health insurance for all citizens and legal immigrants to broaden the risk pool and bring the cost of healthcare down. Healthcare cost must be shared reasonably between employer and employees
· Have equitable insurance premiums based on ability to pay and demographics.

Health IT spending in India

The article is from expresscomputeronline.com... good read
http://www.expresscomputeronline.com/20090907/expressintelligententerprise05.shtml
Vertical Focus
Focus On: Healthcare
N Geetha examines the business challenges faced by CIOs in the healthcare vertical and looks at how technology is being used as an enabler.
Escalating growth immunities
Arpan Gupta Principal Analyst, IDC
Thanks to various government stimulus packages in the offing, the healthcare vertical is poised for growth. Arpan Gupta, principal analyst, IDC India stated that the turnover of this industry vertical was Rs 150,000 crores and that it was expected to grow at a CAGR of 20% over the next five years. Urban areas are showing a growth curve, while the rural sector is yet to show momentum in the healthcare sector. However, derivative industries such as healthcare insurance, healthcare services and equipment manufacturing companies are growing strongly.
A report from Technopak Advisors, an independent research body, found that healthcare which was a $35 billion industry in India, was expected to reach over $75 billion by 2012 and $150 billion by 2017. Confederation of Indian Industry found that with this sector growing in a linear fashion and that the demand for hospitals and beds was on the rise. Investments to the tune of $50 billion are expected to be made annually for the next 20 years. The stimulus package by the government as part of its National Rural Health Mission program, which allocated $2.42 billion in its recent interim budget, should drive the healthcare industry in a positive direction.
Another indication from a recent study done by FICCI along with Ernst & Young spotted various opportunity areas for investors in the healthcare sector including medical infrastructure, which would call for an investment of $77.9 billion and medical equipment that is projected to reach $4.97 billion by 2012. Clinical trials are on track to become a $1 billion industry by 2010 while the health services outsourcing sector was expected to grow to $7.4 billion by 2012. Healthcare vertical CIOs are aligning their strategy with the growth of their industry and organization. For instance, Suresh Shenoy, CIO of Wockhardt finds aspects such as economic upward mobility, overall structured healthcare awareness, healthcare insurance penetration, growth in population in general and patients from overseas etc., fuelling growth. "Wockhardt Hospitals witnessed an overall growth of 25% during fiscal 2008-09 and we have set a target of 25% for 2009-10," pointed out Shenoy.
Focus on: Healthcare
Top business challenge: Constrained budgets, growing demand for healthcare facilities, disparate IT solutions, lack of skilled labor and the need for quick turnaround time in order to offer better care to patients
Solution: Focus on advanced IT tools, increase workflow efficiency and improve resource management
How it can help: Healthcare Information Systems (HIS), Clinical research trials tools, EMR, PACS, telemedicine, collaborative tools are some of the IT solutions that are available for this sector
Manish Gupta, CIO of the Rs 100 crore Health Care Global Enterprises Ltd. (HCG), the cancer care provider, viewed healthcare's growth as having a fixed component, which was recession and disease proof and a variable part that depended upon doctors, population, disease breakouts, lifestyles etc.
According to Gupta, the factors that were propelling this sector's growth included individual awareness, collective decisions on healthcare, government push, micro-insurance schemes, public private partnerships etc.
Dr. R S TyagiDeputy Director & Head - Computer Facility, AIIMS
HCG clocked 25% organic growth during fiscal 2008-09 and it has a 40-50% revenue growth target with at least 30% growth in margins targeted for 2009-10. The encouraging factor that Dr R S Tyagi, deputy director & head computer facility of All India Institute of Medical Sciences observed that it was the government's drive towards making existing hospitals into super specialty units, which would result in the extensive use of IT infrastructure.
As for growth, Dr Tyagi maintained that the hospital had been provided with additional land and financial resources to open a second campus on 350 acres of land.
Srikanth Raman, CIO of the Bangalore-based Narayana Hrudayalaya expected explosive growth for hospitals with more facilities coming up in Kolkata and Jamshedpur. "Currently we have a 500 bed accommodation in Bangalore and have a target of going up to 30,000 beds soon," said Raman. Ricky Bedi, CEO of Bangalore-based Teleradtech, the technology arm of Teleradiology Solutions, found that the industry was growing at 15% and that there was an upward movement that would result in hyper-growth of almost 200% within a couple of years.
CIOs opined that it was time to pull up their sleeves in making IT the critical component of the anticipated growth. So far, IT has not made sufficient inroads in this vertical because of the conservative nature of the industry.
Under pressure
Suresh Shenoy CIO, Wockhardt
While CIOs across industry verticals are challenged over how to align technology with growth, CIOs in the healthcare sector face the challenge of convincing the top management that technology can be an enabler for driving business. The adoption of advanced IT tools has been minimal in this sector barring a few top medical institutions. Cost is obviously the deterrent here.
Bedi observed, "My greatest business challenge is to bring down the cost of, and optimize the quality of, care. The end goal is customer satisfaction irrespective of what impact my workflow automation creates."
"How do I evolve the best integrated model for better patient information using any technology, that is the challenge," he added.
The crucial challenge for Narayana Hrudayalaya's Raman was the question of putting in place an effective communication process about the ethos of quality care within an organization.
"Given the various applications that run in isolation, the challenge is to have a central infrastructure, and to have a real time information flow," said Raman.
It would be strange to find that, across the healthcare institutions, IT is not looked upon as a catalyst for growth. If an investment is proposed for some IT deployment, the management looks at opting for fresh medical equipment rather than IT.
IDC's Gupta found that CIOs in this industry vertical were burdened with increased overheads, the imperative to ensure quick turnaround time for treatments and constrained about going beyond the basics of IT.
Wockhardt's Suresh Shenoy felt that there was great pressure owing to the slowdown.
"Growth-related pressure is on two accounts, one is that the existing IT infrastructure needs to give a better RoI against major limitations and the second is the need to invest in additional IT systems. Balancing the two is difficult," maintained Shenoy.
The critical business challenge for Shenoy was to capture every small cost at the point of delivery given the complex cost structure with lots of shared services. Shenoy found that activity-based costing such as evaluating which product or service offering isn't easy to do.
While Dr. R S Tyagi did not see growth as a challenge with more funds coming into the fold, selecting a stable solution provider to work on consistent basis streamlining the entire IT infrastructure remained his biggest challenge.
HCG's Manish Gupta's key challenge is always whether the patient or the payer (insurance, government, or employer) is willing to spend for early detection, preventive care, and new technology.
Gupta's other challenge internally was to ensure quick turnaround time in the hospitals. From a technology point of view, he opined that most institutions found sourcing care protocols-based software, mobile phone-based care delivery and tele-health care etc. to be a tough task.
Despite the challenges and priority constraints, CIOs have managed to add the required IT services into their portfolio to drive demand.
IT in Vogue
Ricky Bedi CEO, Teleradtech
Bangalore's Teleradtech has seamlessly integrated radiology with IT to providing consultancy services to hospitals, diagnostic centers, customizing, deploying, maintaining and supporting the PACS (picture archiving and communication systems) and RIS (Research Information Systems) solutions.
Bedi has deployed medical information systems, health information systems and an in-house developed instant messaging system while ensuring that redundancy is built in.
"It was imperative to ensure that the technology improve the workflow within the organization," maintained Bedi. Bedi went in Smartris.Net, a Web-hosted RIS platform with integrated PACS and billing system on a unified database, supporting a RIS-driven workflow.
While facing the integration-related challenges with no standardized process, Bedi is focused on creating a platform with collaborative tools such as unified communication to integrated and enable the active use of EMR and Lab management systems by its clients. By deploying these applications, Bedi ensured that the productivity of radiologists improved, enabled single system access for patients, reduction in resource consumption and overheads for managing the workflow, besides easy maintenance and quick turnaround on implementation changes owing to the configurability of system.
While there have been few accounts of IT deployments at Narayana Hrudayalaya, Raman said that applications such as HIS and ERP were used to scale up operations. While retaining the IT team was a challenge, most of it had been developed in-house.
The biggest implementation had been with regard to HIS software sourced from a Mumbai-based company and Raman had deployed Tally as a backend for accounting purposes. The hospital's IT spend would be less than 1% of its total revenues this fiscal. It has tied up with 250 units as part of its telemedicine initiative to provide quick care to the patients.
According to Dr Tyagi, AIIMS planned to allocate Rs 20 crores towards IT for 2009-10. So far, the major expenditure had been on security, networking and infrastructure. The institution has an internal LAN that hooked up 1,500 odd systems within the campus and IT is used for basic e-mailing. For its other premises, it is connected through a 42 Mbps WAN from ERNET.
Dr Tyagi and his 20-member team's priority has been to computerize the hospital. The applications currently being used at AIIMS include library information, patient registration, diagnostic information, billing, accounting, publishing of literature and other departmental systems.
"We have been using security gateway solutions from Cyberoam as well as Microsoft and Novell operating systems," remarked Dr Tyagi.
AIIMS has been using telemedicine and more than 300 locations are connected to 500 experts.
The Oncology specialist, HCG's Manish Gupta, did not take IT spend on desktops, servers, security and applications, which were anyway mandatory, into consideration. "Our spend covers medical equipment interfaces, custom developed hospital system, disease treatment protocol software, video conferencing, tele-radiology, medical image archival, IP based alerts/alarm instruments, unified communications, and of course the "backend" financial/inventory systems."
Gupta maintains that part of building automation and mobile phone-based spend is also managed by IT and technologies related to embedded systems, RFID and nano-technology is generating interest in healthcare IT.
Gupta argues, the IT spend is highly variable, but a minimum of 1% of revenue is spent and a lot depends on the size of hospitals and interconnectivity needs that, in turn, depends on the level of interaction between physicians.
EMR has helped the doctors and the management effectively. A lot of spending has gone towards clinical research and trials and HCG has deployed business intelligence to capture accurate data for analytical reports. Gupta said that the key business were deploying software related to care protocols, mobile applications, tele-health including teleradiology, tele-diagnostics and tele-medicine.
"HIS is the basic need for all the healthcare has been developed in-house," said Gupta.
Given the economic slowdown, Wockhardt's Suresh Shenoy witnessed pressures on spending as every penny spent needed justification. 2008-09 saw spending towards telemedicine, PACS, RFID, CRM and integration of medical devices and equipment to deploy a central HIS at Wockhardt.
Shenoy and his team focused on deploying Wipro HIS ERP, developed on Microsoft SQL Server to cater to the complete business process at each hospital addressing various functionalities like delivery of care, labs, pharmacy, blood bank services, IP and OP billing, procurement, movement and consumption of materials. "There are about 30 modules, all of them tightly integrated online."
According to Shenoy, while HIS is locally installed at each hospital site, its financial summary in terms of payments, receivables, and GL is captured globally through Oracle Financial ERP as HIS is integrated with this to create a dashboard.
From an infrastructure point of view, Shenoy has gone for a high-end server with cluster management and fault tolerant WAN connectivity, connecting all of the hospitals over a MPLS VPN that is part of Wockhardt's global network.
The other areas of deployment at Wockhardt included centralized Internet access security enforcement, biometric physical access control and integration with the attendance system, while Lotus Notes messaging was in vogue. For each reach, Shenoy opted for digital wireless telephony at hospitals.
Shenoy saw the benefits of integrating disparate systems, medical equipment resulting in labor effort savings and increased accuracy and better delivery of care to customers.
2008-09 has been slow for most CIOs amidst stringent spending criteria, the current fiscal seems to be an exciting time.
IT Outlook
2009-10 could turn out to be a great deployment year for most CIOs in this sector. "Peer to peer collaboration is critical to address the demands effectively," said Bedi.
According to him, video conferencing, VoIP and the use of medical transcription were key to address business needs.
The key agenda that Raman would carry out would be to identify waste areas where costs could be trimmed using IT as a tool.
"My aspiration is to evolve a system where I can communicate to customers about our specialty offerings and services in an effective way with the use of IT," maintained Raman. "Since our growth plans are big, we would invest on IT, and the immediate need is to create a dashboard for providing real-time information using varied applications," he added.
Raman and his team are evaluating the possibility of outsourcing and deploying varied applications to suit their needs.
Dr Tyagi's agenda is to go in for a outsourcing model with a consultant suggesting varied applications and driving technological innovation at AIIMS.
"As we are getting ISO 21000 certification, it is mandatory to get the best security systems and applications which can increase our operational efficiency," remarked Dr Tyagi.
Gupta's thrust would be to deploy technologies that help the institution in the early detection of patient problems.
'I aspire to streamline operational processes in healthcare providers that are often ignored and unlike other industries, technology can build new business or customer base in hospitals," averred Gupta.
Gupta is keen to drive mobile technologies for his care providers (doctors, nurses, and I would even include patient's families) who are always short on time.
Mobile diagnostics is the focus area for HCG, besides Gupta aiming at building a model around imaging software integrated with SAP modules. "We would go in for varied modules from SAP and tweak it to our needs," said Gupta.
With some relaxation in IT spending during this fiscal, Wockhardt's Shenoy intends to align IT strategies with business strategies in a more efficient manner to make IT the major driver and a profit center.
While agreeing that IT penetration in the healthcare sector has been minimal restricting to basics, IDC's Arpan Gupta finds that the IT spend during 2008-09 had been to the tune of Rs 700 crores, which is likely to increase in this fiscal.
The popular solutions deployed include integrated billing systems, PACS, SOA to a certain and virtualization with a focus on telemedicine.
Cashing in on trends
As a technology trend, IDC's Gupta found that the evolution of subsidiary industries such as healthcare insurance, medical tourism, outsourcing and consulting services as the demand for healthcare is growing.
Besides this, from the IT infrastructure and applications point of view, Gupta found growth in networking, peripheral industry, software services and e-prescription applications and so on as the need for IT was growing amongst healthcare institutions.
Raman was keen on outsourcing and he expected health care insurance providers to drive the growth for IT as it involved effective communication.
Gupta expected that technologies related to teleradiology would be aspired for as there was a growing demand for this expertise, but there was a shortage of this community.
Dr Tyagi saw the deployment of storage and server consolidation on the rise with more data coming into the fold.
From a growth perspective, Wockhardt's Shenoy bet upon telemedicine, PACS, Integrations of Medical Equipment, ABCM (Activity based Cost Management) solutions which would be predominantly deployed across healthcare institutions.
With the Union Health Ministry mooting a proposal to set up a series of 'Medical Parks' all over the country to enable domestic health industry to manufacture health equipment at large scale, growth is assured. Besides, to encourage indigenous manufacturing, special economic zones have been initiated to make the industry competitive and regulate the market.
geetha.nandikotkur@expressindia.com

Why are providers struggling

Abstract: In the current healthcare setting, the providers (hospitals and physicians) are under pressures that stem from gaps in market and legislation. Our response must include ways to stabilize the current dynamics between payers, the providers and the patient using a mix of legislative guidelines and financial incentives.

I. Background - From Then to NOW
The healthcare ecosystem is shared by patients, providers (hospitals and physicians) and payers/insurers (managed care organizations, Medicare, Medicare). The payers played a big role in the corporatization of healthcare. Their main intention was to curb exploitation of fee-for-service system by providers. Gradually, the payers took control over the functioning of healthcare in America by containing cost in all respects. Managed care organizations did so by restricting patient’s preferences, limiting access to care (using gatekeepers), denying coverage, risk contracting and rationing based on the ability of the patients to pay premium. All payers resorted to standard reimbursement schemes with variants (Medicare had diagnosis related groups - DRG, managed care used flat fee per day etc). The payers enjoyed the advantage of huge subscriber (patient) base, which was used to negotiate (dictate) terms with providers. During this time the cost of healthcare (Premiums, out of pocket, copayments) rose at a rate higher than inflation and the rate of growth of income. The situation roused much public discontent and a power struggle between provider and the payers ensued.
The providers responded by consolidating amongst themselves through mergers and acquisitions, by forming large physician groups and by becoming process efficient. Thus they were in a position to negotiate better reimbursement rates from the payers (especially commercial insurers). Responding to their subscriber sentiments, the payers began to loosen up (like offer more flexible plans and relax pre authorization rules) and an uneasy cease fire was established among the players in the healthcare industry.
In the current scheme of things, the providers are under struggling to survive due to asymmetric market forces and regulations. Profit margins are triumphing over social medicine. To be successful, the current health reform will have to balance the loci of power among the players in the healthcare industry.

II. Provider Challenges
The impact the challenges given below may vary in degree for hospitals and physicians
· Treatment of uninsured – Under EMTALA (Emergency Medical Treatment and Active Labour Act), the hospitals may not turn down patients coming to the ER. The hospitals incur a high financial overhead to maintain and run an ER. There is a growing number of uninsured visiting the ER to address their medical needs. This is in addition to the valid emergency cases without insurance. The cost of care in all such cases (including follow up post the ER episode) is borne by the provider bringing down the profit margin.
· Labour costs – There is a shortage of medical staff. High demand and low supply cause the providers to offer competitive salary to attract quality care givers. Specialists consider ER duty as unrewarding. It is known to take a toll on their personal life. In their perception, ER duty takes away the time they would have otherwise spent attending insured (financially rewarding) patients.
· Cost shifting – High-end cost effective technology is helping day care (out-patient) surgery units to succeed. Traditional hospitals are not set up for this and suffer loss of in-patient revenue from lost patients. This market is dominated by specialty hospitals which work with insured patients and revenue generating medical conditions. They minimize losses by not having the obligation to treat uninsured or provide public welfare programs, ER and trauma units. Competition from specialty units is driving traditional providers to take losses or invest in similar initiatives. Increase in proportion of out-patient visits are also contributing to loss in in-patient revenue.
· Low reimbursements – Medicare and Medicaid pay hospitals 95% and 73% of what it costs them to provide care, while private insurance pays about 120% of those costs. This mechanism of cross subsidy employed by providers allows them to sustain themselves, financially. The healthcare reform bill in its current draft proposes to cut funds to Medicare and Medicaid even further which would mean even lower payments to the provider.
· Cost of drugs – Newer drugs are costly and many a time the physician’s choice of drugs is in conflict with the hospitals cost containment efforts. Number of episodes due to lifestyle related diseases are rising and driving up cost of care.
III. Provider Response
The providers may respond to their current challenges using a combination of strategies outlined below.
· Contain labour costs and close less-profitable services and consolidate by mergers and acquisitions
· Integrate logistics to negotiate better rates for purchasing medical supplies from corporate vendors.
· Seek a more favourable payer mix to be able to cross subsidize better. A public option will make this difficult as government run programs will continue to pay less for care in line with Medicare and Medicaid.
· Restructure hospital and physician relationship. Become competitive by creating specialty units (possibly in partnership with physicians) and retain both good physicians and their patients.
· Increase reliance on non operating income (The portion of an organization's income that is derived from activities not related to its core operations). Engage staff in financial performance improvement
IV. Our Response and conclusion
Our response must include ways to enable the providers to sustain and grow. A mix of regulatory mandates and financial incentives are suggested below.
· Mandate insurance for one and all. This will reduce financial burden of the provider to give charity care to uninsured (Reference: Senate Finance Committee draft by Sen. Max Baucus).
· Provide financial incentive for providers to adopt technology to improve process efficiency and care coordination. Example: Shared nomenclature between hospital billing system and insurance companies(that reduce cost towards healthcare clearinghouse), e-prescription, etc (Reference: HITECH Bill)
· Mandate specialty hospitals to offer, at least one, public welfare program(s). This will rein in elements of social medicine in their practice.
· Provide incentives for providers to come together and form shared-services department (where feasible) especially in high-end diagnostics, medical coding, etc. This will result in cost sharing and higher utilization for the providers.