By: Mike Colias July 12, 2010

Advocate Health Care is learning just how bumpy the road to health care reform will be.

The state’s largest health system is dutifully carrying out the sort of cost-saving steps that would please President Barack Obama’s health-reform team. It’s curbing expensive CT and MRI scans. It’s urging physicians to nix excessive lab tests. It’s trying to keep chronically sick patients from returning to the hospital again and again.

Advocate’s reward: a hit of more than $35 million, or 1%, to its 2009 revenue. That’s because it’s eliminating services that, under today’s fee-based system, generate a separate payment for every test, procedure and doctor visit.

“You’re shooting yourself in the foot by making these changes now, even though they will pay off down the road,” Advocate Chief Operating Officer William Santulli says.

Local hospitals are just starting to grapple with national health reforms that will fundamentally change how they treat patients — and how they’re paid. The federal Medicare program is moving toward a model that will pay hospitals and doctors a lump sum for an entire “episode of care,” from the initial heart scan to the rehab after surgery, for example. Poor quality and high costs will be punished.

BIG CHANGES

Chicago-area hospitals are in for a more jarring change than most. They are prolific users of resources, spending 25% more on medical care per Medicare patient than the national average in 2006, according to research from Dartmouth Medical School in New Hampshire (Crain’s, Sept. 28). And they are among the nation’s worst at keeping chronically ill patients from returning to the hospital soon after they are discharged.

Dr. Dave Farnsworth examines Keyshawn Brown, 11, at Advocate Health Center on Chicago’s South Side. With them, from left, are mother Carmella Harris Brown, Kirsten Brown, 3, and Kaleb Brown, 4. Photo: Stephen J. Serio

Experts say Chicago lags in part because of its splintered delivery system. Most physicians are in private practice and don’t work directly for hospitals, making it tougher to track patients. A lab test done in a doctor’s office is often needlessly repeated at the hospital a few months later because the two don’t communicate.

The winners will be the hospitals that align with doctors, nursing homes, rehab facilities and other medical providers to manage patients throughout their care, experts say. That requires closer collaboration and costly electronic patient records.

“It’s not about building new facilities or mergers and acquisitions,” says Michael Nugent, director of the managed-care pricing team at Chicago-based Navigant Consulting Inc. “The hospitals that will fare best are the ones that are dealing most seriously with getting ready for these reimbursement changes and partnering with the right doctors.”

The federal Medicare program will test lump-sum payments, known as “bundled payments,” in certain markets, and probably wouldn’t adopt them more broadly for years. But Chicago hospitals need to hurry: Blue Cross & Blue Shield of Illinois aims to roll out bundled payments in contracts with some hospital systems and physician groups starting next year.

The city’s dominant insurance carrier expects that by the end of 2011, 10% of its membership will be covered by contracts that pay providers on an episode-of-care basis, says Steve Hamman, the insurer’s vice-president of network management. UnitedHealth Group Inc., the No. 2 insurer in Chicago, also plans to test bundled-payment here and elsewhere, Chief Medical Officer Sam Ho says.

Blue Cross already uses a similar payment structure in its HMO networks, which cover 123,000 of Blue Cross’ 6.8 million Illinois members. Medical costs for those plans are nearly 30% lower than in Blue Cross’ more-expensive PPO plans.

COST CONTROL

Bundled payments put the onus on providers to control costs, rewarding quality and efficiency over volumes, says Scott Sarran, Blue Cross’ chief medical officer.

“I do think there will be winners and losers” under the bundled-payment plans, Mr. Sarran says. “Some (hospitals) have such high cost structures that, if they can’t get those under control, those folks may have real problems.”

Some larger health systems say they are ready. At University of Chicago Medical Center, physicians are on salary, which experts say takes financial considerations out of the decision-making process. U of C is one of the most careful users of medical resources among Chicago hospitals, Dartmouth data show.

“In essence, we have to pay for everything out of the same big pot of money already,” says Rick Bacon, U of C’s director of financial planning and strategy.

Provena Health, whose six hospitals include facilities in Aurora and Elgin, could thrive under bundled payments because it owns nursing homes and home-health facilities, key tools for tracking patient care outside the hospital, Provena Chief Medical Officer Robert Permut says. For example, prompt home visits to recently discharged heart-failure patients cut one Provena hospital’s readmission rate in half.

Taking those steps today usually requires giving up revenue, says Erik Johnson, a senior vice-president at Washington, D.C.-based consultancy Avalere Health LLC.

“I’d hate to be a hospital executive right now,” he says.

©2010 by Crain Communications Inc.

Maybe because my grandmother, girlfriend and half her family are nurses, but I’m increasingly intrigued by healthcare, especially the seemingly backwards way of doing business. I don’t know of the laws and regulations but healthcare providers need to figure a way to integrate better with each other. It would be a huge security issue, but imagine being able to tap into each other’s patient database via API’s and such…