doi: 10.1161/01.CIR.0000129321.85739.8B
(Circulation. 2004;109:2381-2385.)
© 2004 American Heart Association, Inc.
Mini-Review: Expert Opinions |
Doctors and Hospitals
Healthcare’s Rubik’s Cube
From The Lindner Center for Research and Education/Ohio Heart Health Center (D.J.K.), Cincinnati, Ohio, and St Luke’s Episcopal Hospital/Texas Heart Institute (J.T.W.), Houston, Tex.
Correspondence to Dean J. Kereiakes, MD, The Lindner Center for Research & Education, 2123 Auburn Ave, Suite 424, Cincinnati, OH 45219 (e-mail lindner{at}fuse.net) or James T. Willerson, MD, St Luke’s Episcopal Hospital/Texas Heart Institute, 6720 Bertner Ave, Room B524 (MCI-267), Houston, TX 77030-2697 (e-mail suzy.lanier@uth.tmc.edu).
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Introduction |
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Nearly all sectors of the US economy (except health care, which accounts for one seventh of the US gross domestic product) are consumer driven on the basis of accepted tenets of quality, cost, and value. Executives integral to corporate success are not prohibited from equity ownership in the companies they direct. Why then, should physicians who are integral to the process and practice of medicine be prohibited by the federal government from equity partnership in the very facilities in which that care is provided? Both this question and its answer(s) are complex. The diverse facets of this problem are examined in the present issue of Circulation by Regina Herzlinger, a Harvard business school professor, and Stanley Hupfeld, the chief executive officer of a nonprofit healthcare system who was specifically chosen to represent the American Hospital Association. Few issues have been more contentious or hotly debated. On one hand are the accepted "American" doctrines of personal liberties, free market competition, and capitalism, while on the other are concerns about "social responsibility," access to health care for the disadvantaged, and the provision of services for which there is no market incentive. Professor Herzlinger admonishes the arbitrary prohibition of physician ownership in subspecialty hospitals and recommends correction of the current disproportionate healthcare reimbursement scheme.1 Credible arguments made on behalf of social responsibility must take into account that nearly 43 million Americans are uninsured. Similarly, the legislation that prohibits physician ownership does not address Mr Hupfeld’s concerns about poorly reimbursed care for burn or trauma victims.2 Why is the US hospital system forced to "rob Peter" (cardiovascular and orthopedic services) to "pay Paul" (uncompensated "low-margin" care crucial to societal needs)? Furthermore, how can the incentives of doctors and hospitals be aligned to assure the provision of cost-efficient, quality patient care? An historical perspective may be helpful in understanding the current predicament.
From their earliest origins in preindustrial societies, hospitals were primarily religious and charitable institutions that provided care for the sick. After 1900, as hospitals played a progressively important role in medical education and practice, they evolved from charities into market institutions financed to an increasing degree by payments from patients. The economic organization of hospitals in the United States has evolved into a mixture of public and private institutions under independent management. This loose structure arose because of the autonomy of physicians from hospitals and of most hospitals from the government. The first general hospitals in the United States included the Pennsylvania Hospital in Philadelphia (1752), the New York Hospital (1771), and the Massachusetts General Hospital (1821), which were financed by voluntary donations, not taxes. Doctors were interested in creating hospitals both to develop medical education and to create prestige. As doctors derived status and influence from hospital positions, many gave their services to hospitals without pay. Despite donations and bequests, these "voluntary" hospitals often could not cover costs and turned to patients for funds by requiring them to pay for at least part of their treatment. Improvements in hygiene, surgical technique, and medical care prompted growth in surgical case volumes, which then provided the basis for expansion and profit in hospital care. Concomitantly, the portion of patients who paid for their care increased considerably until 1922, when receipts from patients accounted for 65% of the income of general hospitals.3 With this trend, practicing physicians who brought patients to the hospital played a progressively important role in the prosperity of their institutions. Nevertheless, early in the 20th century, many physicians felt a lack of control over their hospital practice environment and verbalized this perception. "Is it not about time the professional mind began to dominate in control of these institutions (hospitals)?" queried one physician in a letter to the Journal of the American Medical Association in 1902.4 Another prominent physician, Bayard Holmes, wrote, "When the industrial revolution of the 17th Century began, it found Europe peopled with independent tradesmen...now we find the homeless, tool-less dependent machine operators far removed from the people who furnish a market for the standardized product of their toil. The hospital is essentially part of the armamentarium of medicine...if we wish to escape the thrall-dome of commercialism, if we wish to avoid the fate of the tool-less wage worker, we must control the hospital."5
Thus, the proprietary hospital became a mechanism to resist the existing corporate hospital administrative structure and to gain professional control. Many physicians felt that existing voluntary hospitals were not providing adequate accommodations for their private patients. Doctors joined together to own or joint-venture hospitals. By 1910, proprietary hospitals accounted for 56% of total hospitals in the United States, and by 1928, approximately 1900 for-profit community hospitals existed.6 This proportion fell progressively to 18% of total hospitals by 1946.7 Many for-profit hospitals were converted to nonprofit corporations by the physicians who owned them. In fact, in 1929, the American Medical Association reported that many doctors who ran hospitals for profit found the hospital itself to be "a losing proposition" that nevertheless provided the physicians with certain efficiencies and "enabled them to care for a larger number of patients in a given time."8 Physician interest in proprietary hospitals waned as community hospitals opened their staffs more widely and doctors found they were able to have the public provide capital for hospitals while they maximized their incomes through professional fees.
The subsequent dominance of nonprofit hospitals also stemmed from their provision of goods and services that contributed to community benefit. Indeed, many nonprofit hospitals spent more on community benefits than they received in tax abatements. Federal legislation contributed to the proliferation of nonprofit hospitals after World War II with the introduction of the Hill-Burton Act (1946), which provided almost $3.7 billion for the construction and improvement of nonprofit hospitals. These federal dollars were further bolstered by $9.1 billion in local and state matching funds.6 Existing for-profit hospitals, which could not access the capital available to nonprofits, turned instead to large investor-owned hospital systems for help. Initially, those systems, including Hospital Corporation of America (later to become Columbia/HCA), Humana, National Medical Enterprises, and American Medical International, grew rapidly. However, countered by hostility from the mainstream healthcare community, as well as a lack of federal funding and tax-exempt status, the investor-owned hospital share of the global hospital market began to fall in the mid-1980s.
More recently, several trends have prompted a resurgence of interest in the development of proprietary hospitals, particularly those with specific subspecialty focus. First, reimbursement for professional services has declined progressively. For example, professional reimbursement for performing single-vessel angioplasty was approximately $1700.00 in 1986 and fell to $569.00 (Ohio Medicare) and $754.00 (private payers) by the year 2002. In addition, the costs of maintaining clinical practice rose. Malpractice insurance has become prohibitively expensive in many geographic regions and has prompted both physician outmigration and work stoppage. Similarly, costs for the implementation and maintenance of sophisticated electronic information and billing systems as well as health insurance and benefits for employees have increased considerably. The net profitability of medical practice has diminished and thus provides impetus for physicians to evaluate other sources of revenue. An equally significant issue in the minds of many physicians has been their perceived loss of control over the medical care process and their own practice environment. By 1980, practicing physicians faced the specter of "the new medical-industrial complex," which was hailed as "the most important health care development of the day" by then editor-in-chief of the New England Journal of Medicine, Arnold S. Relman, MD.9 Most physicians were unsure what role they might play in this new conglomerate of hospitals, medical schools, health insurance companies, pharmaceutical and medical device producers, and other for-profit entities.
Concomitantly, fewer physicians were interested in solo practice, and the portion of doctors practicing in groups rose. By the early 1980s, some 26% of physicians had contractual relationships with hospitals, and 3 of 5 of these doctors were on salary.10 Through incentives as well as regulations imposed on physicians with regard to the pace and routine of their work, hospitals eroded physician autonomy and increased their financial dependence. The process of "corporate socialism" evolved by modifying the behavior of physicians in ways that encouraged them to accept corporate management perspectives and direction. Compliant physicians usually derived adequate subsidy from their parent healthcare system in exchange for a profound loss of autonomy.
Corporate expansion occurred in the American hospital system when the traditional, freestanding general hospital, which had been governed by its own board, administrators, and medical staff, was cannibalized by larger, multihospital systems administered by powerful corporate management. Multi-institutional corporations, mostly nonprofit, controlled approximately one third of US hospital beds by 1980.11 These nonprofit hospital systems often diversified by using holding companies to operate taxable, for-profit businesses in addition to owning the parent hospital itself. Thus, the tax-exempt, nonprofit hospital frequently operated a conglomerate of taxable for-profit businesses under a polycorporate umbrella. These subsidiary businesses commonly involved health services management, home health, chronic or assisted care facilities, diagnostic services, and short-stay or ambulatory surgical centers. Furthermore, in multihospital systems with centralized planning, budgeting, and human resource functions, physicians were deprived of the prior influence they may have had over their own institutional policy. Thus, the factors prompting a resurgence of physician interest in equity partnering for the development of proprietary hospitals have included the need for additional revenue as well as control over the process and facility for medical care, in addition to concerns about a progressive loss of professional autonomy.
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The Ubiquitous Conflict of Interest |
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Current legislation is based on the perceived conflict of interest related to physician self-referral and has specific focus on limiting/restricting autonomy of individual doctors or independent doctor groups. Clearly the potential and precedent12,13 for abuse exists in a system where decisions about specific treatments generate financial gain to those individuals making them. This situation grows more onerous in the absence of adequate mechanisms for measuring, review, and auditing practice appropriateness. Nevertheless, variations on this theme exist. For example, is it a conflict of interest for a nonprofit hospital system to own physician practices and then specifically instruct those physicians as to where they may admit patients and from whom they may seek subspecialty consultation? Similarly, what conflict exists if the same nonprofit system provides its "owned" physicians access to "downstream" revenue generated from hospital-based diagnostic services? The practice of medicine might be perceived as having a perpetual conflict of interest. Patients are scheduled for return "check-up" visits with their primary care physician in the absence of illness. This potential "self-referral for financial gain" no doubt promotes wellness and may aid early detection of important unrecognized problems. Similarly, the interventional cardiologist/radiologist or vascular surgeon who performs percutaneous vascular intervention at the time of diagnostic angiography (ad hoc angioplasty) has been accused of self-referral. Many nonprofit hospital systems that have openly condemned physician ownership in subspecialty hospitals have nevertheless co-ventured ambulatory surgery centers for gastroenterology, orthopedics, urology, and women’s health. How are these incentives different? Indeed, a fine line separates the outpatient "23-hour observation" and the "short-stay" (
24 hours) facilities involved. |
The Need for Aligned Incentives |
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Our society is faced with spiraling costs for new technologies, which are in exponential demand from an aging population. In addition, the challenges of incorporating evidence-based, guideline-driven medicine into clinical practice and conforming the variable practice patterns of multiple physicians are daunting. How will cost-effective implementation of these new costly technologies be ensured? Physicians play integral roles in identifying patients most likely to derive benefit from a specific technology (drug or device), performing uncomplicated procedures, and subsequent surveillance of the technology under evaluation. There is no substitute for physician involvement in the development and implementation of clinical practice guidelines and critical care pathways. Indeed, the link between process of care and clinical outcomes has been established.14,15 For example, hospitals compliant with American College of Cardiology/American Heart Association guidelines for care of patients with non–ST-segment–elevation acute coronary syndromes demonstrate reduced in-hospital mortality rates when compared with noncompliant hospitals. In an attempt to promote guideline-driven care, the Center for Medicare and Medicaid Services has proposed a pilot program for incremental reimbursement to those hospitals that document the highest degree of guideline compliance. Similarly, physicians implanting drug-eluting stents, cardiac defibrillators, or biventricular pacemakers may not be compliant with labeled and approved indications or established guideline recommendations. Such practice is at the expense of the hospitals and in the absence of evidence-based support for clinical benefit from the costly therapies employed. Obviously, better-aligned incentives between hospitals and physicians that promote adherence to "best-practice" guidelines will provide optimal, cost-effective care in the future.
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Current Law |
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After 4 months of contentious, closed-door deliberations, the new Medicare prescription drug legislation emerged in November 2003. The final iteration of this bill, reputedly "cobbled together" by House Speaker Hastert and Senate Majority Leader Frist, was the original product of a House–Senate conference committee specifically appointed to reconcile two prior versions of the legislation.16 After surviving a "divided conference committee" and after a "historic struggle on the House floor,"16 the "most important health care legislation passed by Congress since the enactment of Medicare and Medicaid in 1965"17 has encountered a mixed reception at best. Detractors suggest it to be an "inadequate, badly designed drug benefit" and "a Trojan horse created with one purpose in mind—to privatize Medicare and pander to the pharmaceutical and insurance industries."18 Conversely, supporters believe that the new law will "markedly improve the health care of 40 million seniors and begin making Medicare more efficient and responsive to the beneficiaries, providers and tax payers it serves."18 Although this new law was specifically designed to address "Medicare’s most fundamental flaw: the absence of a prescription-drug benefit"18 through the process of political barter, it came to include the following paragraph, which refers to precedent (Stark) legislation:
Sec.507. Clarifications to Certain Exceptions to Medicare Limits on Physician Referrals.
- (a). Limits on physician referrals.—
- (1) Ownership and investment interests in whole hospitals—
- (A) In general—Section 1877(d)(3) (42 US C. 1395nn(d)(3)) is amended
- "(B) effective for the 18-month period beginning on the date of the enactment of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the hospital is not a specialty hospital (as defined in subsection (H)(7)); and",
- (B) Definition—Section 1877(h)(42U.S.C. 1395nn(h)) is amended by adding at the end the following:
- "(7) Specialty Hospital.—
- "(A) In General.—For purposes of this section, except as provided in subparagraph (B), the term ‘specialty hospital’ means a subsection (d) hospital (as defined in section 1886(d)(1)(B)) that is primarily or exclusively engaged in the care and treatment of one of the following categories:
- (1) Ownership and investment interests in whole hospitals—
- "(i) Patients with a cardiac condition.
- "(ii) Patients with an orthopedic condition.
- "(iii) Patients receiving a surgical procedure.
- "(iv) Any other specialized category of services that the Secretary designates as inconsistent with the purpose of permitting physician ownership and investment interests in a hospital under this section.
- "(ii) Patients with an orthopedic condition.
Finally, the Medicare Payment Advisory Commission, in consultation with the Comptroller General of the United States, is charged with conducting a study to evaluate differences in the costs of healthcare services furnished to patients by physician-owned specialty hospitals and the cost of services as furnished by full-service community hospitals within specific diagnosis-related groups. The nature and quality of services provided as well as the patterns of physician referral and levels of uncompensated care will be tracked and analyzed. A report on these issues will be submitted to Congress no later than 15 months after enactment of the bill.
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A Potential Compromise |
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Most actively practicing physicians have little interest in becoming hospital administrators. Similarly, hospital ownership is not an objective in and of itself that most physicians wish to pursue. For some physicians, hospital ownership is a surrogate for other more pressing issues in medical practice. First, in the context of declining reimbursement for professional services and increasing overhead costs for supporting practice, it should be anticipated that some physicians will look for other sources of revenue. Secondly, for some physicians, hospital ownership is an attempt to regain control over the physician’s environment. Physicians have little or no control over patient-nurse staffing ratios, nursing salaries, or resource allocation for programs focused on disease management. In addition, they may feel disenfranchised with regard to decisions made on hospital formulary composition or in the development of clinical practice guidelines and critical care pathways. Lastly, catheterization laboratories, operating room suites, and even hospitals are frequently constructed without meaningful physician input. The perceived unwillingness of current nonprofit hospital organizations to partner with physicians in a meaningful way has prompted some physicians to seek other partners in an attempt to overcome the challenges cited above. Indeed, the status (for-profit versus nonprofit) of the hospital facility in which physicians practice is often of lesser importance to physicians than is obtaining meaningful involvement in the process of care and making decisions that affect resources for practice support. The current nonprofit systems ideally should engage physicians in the development of more streamlined, cost-efficient, and physician- and patient-friendly service lines. Unfortunately, despite the obvious potential benefits that partnerships between physicians and the hospital institutions in which they practice may have for all involved, such alliances are not common at present.
Although doctor-hospital partnerships may address many of the pressing needs in medical practice and will better align incentives for quality-assured, cost-efficient patient care, a disproportionate reimbursement scheme that has shaped provision of healthcare services remains. Professor Herzlinger favors fixing the problem of disproportionate Medicare reimbursement for cardiovascular services.19 Because Medicare prices are dictated by government and do not reflect marginal costs, capital may be misallocated.20 Indeed, the overpricing of services such as cardiology has spawned program proliferation and fragmentation of cardiovascular care in many communities. Many small community hospitals are developing programs for percutaneous coronary intervention or cardiac surgery that target low-risk, "good–payer mix" patients. These programs sometimes ignore the well-established link between procedural volumes and quality clinical outcomes. Furthermore, other less profitable (nonsurgical) but vital components of a comprehensive cardiovascular program, such as primary/secondary prevention, heart failure disease management, or electrophysiology, may be overlooked. This reduplication of tertiary cardiovascular services in the pecuniary interest of small community hospitals has progressively taxed critically limited resource pools of subspecialized nurses and cardiovascular physician providers.21,22 Redundant low-volume programs cannot support clinical research or cutting-edge technologies and thus make more difficult the development of regional centers of excellence.23 Professor Herzlinger suggests that the current federal legislation (to restrict physician ownership in subspecialty hospitals) has been designed to counter behavior prompted by a disproportionate federal reimbursement scheme. Indeed, "fixing" Medicare reimbursement, which is the proximate stimulus for both fragmentation and proprietary entrepreneurialism, may be more prudent than reactive legislative efforts to counter such behavior. Current legislation does little to solve the pressing issues of medical practice and less to facilitate doctor-hospital partnerships. By stifling physician control or limiting access to additional sources of revenue, such legislation may exacerbate existing deficits in subspecialty providers and limit public access to care.21,22 Ideally, through the development of meaningful doctor-hospital partnerships and refocused federal legislative efforts to provide appropriate reimbursement across the spectrum of healthcare services, a more integrated system for providing care will evolve. The incentives of doctors and hospitals should be aligned for optimal patient care to be provided and for health care’s Rubik’s cube to be solved.
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Footnotes |
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The opinions expressed in this article are not necessarily those of all editors or of the American Heart Association.
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References |
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1. Herzlinger RE. Specialization and its discontents: the pernicious impact of regulations against specialization and physician ownership on the US healthcare system. Circulation. 2004; 109: 2376–2378.
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13. Abelson R. Tenet promises to take steps to reassure its investors. New York Times. November 2, 2002; C1.
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16. Iglehart JK. The new Medicare prescription-drug benefit—a pure power play. N Engl J Med. 2004; 350: 826–833.
17. Altman DE. The new Medicare prescription-drug legislation. N Engl J Med. 2004; 350: 9–10.
18. Dramatic improvement or death spiral—two members of Congress assess the Medicare bill. N Engl J Med. 2004; 350: 747–751.
19. Herzlinger R. Prix-fixe rip-off. The Wall Street Journal. June 13, 2003.
20. Herzlinger RE. Back in the U.S.S.R. The Wall Street Journal. November 26, 2003.
21. Fye WB. Cardiology’s workforce shortage: implications for patient care and research. Circulation. 2004; 109: 813–816.
22. Bonow RO, Smith SC. Cardiovascular manpower: the looming crisis. Circulation. 2004; 109: 817–820.
23. Topol EJ, Kereiakes DJ. Regionalization of care for acute ischemic heart disease: a call for specialized centers. Circulation. 2003; 107: 1463–1466.
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