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Wednesday, November 20, 2013

Disappearing Hospitals - Imploding Under Reform

Dr. Robert Pearl writes about how health care reform will bring about changes in how hospitals deliver acute care and many will go out of business or change.

Pearl writes: Last week’s (Forbes) article discussed the “strategic inflections point” as that defining moment in any industry when the rules of the game begin to change. In the era of health care reform, hospitals across this country are now experiencing a time of transition.
Pearl writes: We can predict that the first hospital CEO who suggests closing down a cardiac surgical program will be fired on the spot. The doctors and local community will do everything in their power to stop it from happening.

Consolidating or closing entire hospitals will be even more painful. Regulators would likely intervene. Change will be resisted and delayed.

But, if there were fewer hospitals with higher volumes, quality would rise and the overall spend on hospital services would decrease. We should not underestimate how difficult this process will be or how long it may take. But once it is complete, patients will barely miss the old hospital down the street.

Pearl speaks about volume, but there's more to this story. Obviously, volume drives profit margins, regardless of what proceedures are performed. Also, volume is positively correlated with quality outcomes. In other words, those hospitals where volume of services are high report better patient outcomes.

Nevertheless, insurers must agree to pay for these procedures and there's a limit to what's covered. 

Hospitals are also in decline because the cost of keeping them modern (like hotels), fueled for temperature control and germ free have exceeded the reimbursement received for providing care. Some hospitals are booking post operative patients in real hotels rather than absorb the expense of keeping their in-patient facilities staffed to licensing requirements. For example, hospitals can only charge so much exuberant costs for simple wound dressings to compensate for the cost of care. Frankly, it's cheaper to send patients home with an instruction sheet about how to change bandages. 

So, just how can hospitals bring down the cost of care and create profit margins? It seems like small hospitals will need to merge with health care systems where high volume services can be performed, like MacDonald's produces hamburgers. It's a harsh analysis but describes the way it works. Some hospitals will become centers for volume in heart care, others for orthopedic care and some for cancer care. This means the local community hospitals will become outpatient emergency centers and feeder systems for the larger volume facilities.   

Patients will be focused on managed care organizations rather than their hospitals. In the future, it makes sense for people to live in places where their managed care plans provide coverage because, otherwise, receiving care will require paying large co-pays. Also, advanced practice nurses will become integral to every primary care practice, to provide access to growing number of patients who will buy coverage through the health care exchanges.

Here is more of Pearl's interesting Forbes article:

What first comes to mind when you hear the word “hospital”?

Your reaction may depend on your past experiences. You may feel gratitude for the birth of a child or the treatment of acute appendicitis. You may feel sorrow, remembering a loved one who passed away on a hospital bed.

Regardless of our experiences, many of us assume the closer our hospital is to where we live, the safer and better off we are. But that assumption is wrong. Fewer hospitals with increased volumes would lead to higher quality of care and better clinical outcomes.
Some hospitals were born to fail
In the early 1700s, hospitals provided little medical care. Instead they served as isolation facilities for those with contagious illnesses, as shelters for vagrants and those with mental illness, or as almshouses for the poor. Those who could afford medical care (middle- and upper-class families) received it in their own homes, including surgery.

By the end of the 19th century, medical care was becoming too complex to be delivered in the home. As a result, care shifted to centralized facilities where patients benefited from the latest medical advancements and around-the-clock physician and nursing availability.

A century ago, traveling even moderate distances was incredibly slow and expensive compared to the cost of hospital care. Therefore, building a hospital in every town made sense. Hospitals became a source of great civic pride for community leaders who comprised the governing boards. And so the “community hospital” was born.
Founded by physicians, religious groups and public municipalities, the number of U.S. hospitals grew exponentially from 178 in 1873 to 4,300 in 1909 to 6,000 in 1946. The passage of the Hill-Burton Act in 1946 helped further expand that number to 7,200 by 1970.

With the introduction of the publicly funded Medicare and Medicaid programs in 1966, the number of individuals with health insurance skyrocketed – as did the demand for inpatient services, as did hospital costs.

By the 1990s, high-margin procedures such as heart bypass surgery and total joint replacement were performed in (and advertised by) nearly every hospital. But the demand for inpatient services sharply declined in the 1990s with the introduction of managed care, the expansion of outpatient alternatives, and the mounting costs of a hospital stay. During that decade, some hospitals were forced to merge or shut down.

Since 2000, the number of acute-care hospitals has held steady at around 5,700. However, the push to limit utilization at these high-cost facilities continues while low-volume hospitals across the country are struggling to survive.
Hospitals are facing a strategic inflection point
Last week’s article discussed the “strategic inflections point” as that defining moment in any industry when the rules of the game begin to change. In the era of health care reform, hospitals across this country are now experiencing a time of transition.

The reduction in their volume, revenue and margin threatens their independence and even their existence. Over the past decade, 16 percent of hospitals have consolidated by joining a health system. That trend is accelerating in the context of the Affordable Care Act, also known as Obamacare.

And there's more of this article at this link: 

Therefore, what's going to happen to closed hospitals?
They'll become relics like empty textile mill buildings, inner city schools and underutilized churches. Self care will trump hospital admissions. Moreover, insurance companies will gain from profits once absorbed by acute care hospitals because they'll reap an incentive for keeping people well, thereby saving the cost of paying for expensive sickness care. 

All of the above information, of course, can be turned upside down as people live longer and require more chronic care. I haven't read Pearl's analysis of how to pay for the care of an aging population. 
Stay tuned.  

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