When Medicare imposed its diagnosis-related groups (DRGs) and its prospective payment system (PPS) on American health care in the 1980s, many believed this would never work. Rather than crash the health care system, in many ways, it reformed it, but only partially. While Medicare enjoyed the fruits of this approach, private insurance companies usually did not.
For the most part, hospitals still treat patients individually based on several factors, like how the patient came in (Emergency Room vs. Direct Admit) and how the patient’s medical care is monitored (hospitalist or private physician). The idea behind the prospective payment systems use of DRGs is to ensure that Medicare reimbursements adequately reflect “the fundamental role which a hospital’s case mix plays in determining its costs” and the number of resources that the hospital needs to treat its patients. It makes sense at a 30,000-foot level, but the view gets a lot murkier between the ER, ICU, and patient rooms.
The CMS requirement for hospitals to post the pricing they have negotiated with health care insurers for the benefit of privately-paid patients has created yet another wrinkle in the health care system. According to HealthCareDive, a health news service, non-compliance with price posting is common.
Hospital non-compliance is a serious issue, but it raises an even more serious one: how does a hospital compare apples to apples when one insurer is getting rates and prices for individual items like humidifiers and cooling blankets, procedural sedation, and drugs used, while the government is getting rates for “diabetes with no complications.”
It may be time for health care executives to start thinking like the chief executive officers of manufacturers and implement a product line management approach to health care. To illustrate this, consider that when Ford or GM builds an automobile, they make it to compete in the market with different features and styling, and aimed at a particular market demographic (the 20 – 30-year-old male, for example, is the demographic that cars like the Mustang and Camaro target). They sell multiple versions of the Mustang and Camaro, from the stripped-down version (steering wheel and brakes extra) to the top-of-the-line version (heated and air-conditioned seats). The price points on the car reflect the different segments of the market that the vehicle is aimed toward.
The elephant in the C-suite of every hospital is Medicare. It is the tail that wags the dog, the dog being the hospital. What Medicare wants, Medicare gets because most hospitals have at least a 50% Medicare case mix, and few hospitals could do without 50% of their business. So rather than adapt the old way of doing business to DRGs, hospitals might be wiser to manage their hospitals based on their community experience, deriving multiple efficiencies from doing so.
Suppose a hospital knows that 40% of their patient load is patients with compromised pulmonary function, irrespective of whether those patients are Medicare age. In that case, it could build programs and services aimed at that demographic. Yet, in most hospitals, few line managers could tell you what the statistics reflect about the type and severity of patients they see.
Yet, imagine the patient’s response to a system where, when the patient was identified in the ER as having difficulty breathing, he was immediately sent to the floor with specific pulmonary care in place. The hospitalist knew and understood pulmonary care, and the respiratory therapists were used to getting patients better quicker, using a team approach with the physicians and nurses. In addition, for those patients with compromised nutrition, or kidney dysfunction, special product lines for those patients would improve patient satisfaction and make it easier to deliver care tailored to the patient’s medical condition and more efficient than a one-size-fits-none approach.
However, the real benefit to such a data-driven approach to health care is that patient satisfaction is merely an additional benefit. Data-driven health care almost always translates into risk reduction in the long run. The reasons are obvious: the best-qualified clinicians are dealing with the patients who have already been identified as needing their unique skill sets, meaning that the standard of care is uniform and enforced by those providing the patient care. Getting a patient better, faster, and with less medical error drastically reduces the risk of litigation.
Will such practices actually work? You may be surprised to learn this is not a new idea. M. F. Manning wrote an article for Healthcare Financing Management in January of 1987 that asked that question without concluding any answer. However, in the mid-1980s, neither data analytics nor HIPAA presented issues for health care providers. Hence, there was less interest in implementing a product line approach instead of “the way we’ve always done it.”
Almost any health care system that improves patient satisfaction improves risk reduction because, as I have said hundreds of times now, “people do not sue people they like.” However, they have no difficulty at all suing people they don’t like.
Perhaps the requirements for posting prices and making comparisons between health care providers will lend emphasis to an approach to health care that allows patients to choose a health care product in the same way they now choose a car. Time will tell.
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