The second insomnia-inducing aspect of consumerism is transparency of pricing. As the exchanges move to create a “Priceline.com”-like approach to selecting an insurance plan, a similar transformation is occurring in how payers—and, with the spread of plans with higher patient obligations, patients themselves—are looking at how we set prices for everything from MRIs and laboratory services to hospitalization and physician charges. While we as individuals are used to price transparency in purchasing consumer goods, the third-party payment system in healthcare has insulated us, and our hospitals, from the consequences of the market system. (Please note, dear reader: I’m not defending either the past practices or current policy. I’m simply diagnosing why your CFO has black circles under his or her eyes.)
So, prices are increasingly published and available for comparison shopping by both insurers and individuals with those high deductibles or co-insurance amounts. As charges hit their pocketbooks, there is good reason to believe that patients will be “brand loyal” only to the point where they stop appreciating value. Systems with a reliable advantage in pricing (think: academic medical centers) run a great risk of losing business quickly if they cannot demonstrate value for those prices. Hospital-based physicians have been in the position of being the “translators” of value-based care—by always advocating for measurably better care, we help both our patients and our organizations.
Variation in Care
Perhaps most befuddling to our CFO friends are the variations in costs, outcomes, and clinical processes that seemingly similar patients with seemingly similar problems incur. Wide variations might occur based on just about any parameter, from the name of the attending physician to the day of the week of admission. Of course, at times, this variation could be explainable by, say, clinically relevant features that are simply not adjusted for, or the absence of literature to guide decisions. But, all too often, no reasonable explanation exists, and underneath that is a simmering concern that wide variations reflect failure to adhere to known guidelines, uneven distribution of resources, and “waste” deeply embedded in the healthcare value stream.
Less widely understood to clinicians is that, from the CFO’s perspective, the movement toward “value over volume” and risk-bearing systems such as accountable care organizations (ACOs) requires healthcare organizations to think like insurance companies. They must be able to accurately predict clinical outcomes within a population so that they can assess their actuarial risk and manage appropriately. Wide variations in care make those predictions less valid and outcomes more unpredictable, greatly raising the stakes for an ACO or other risk-bearing model.
From the CFO’s perspective, a key advantage to the move toward systems directly employing physicians is that a management structure can be created to decrease this variation; however, I’d question whether many physician groups, much less employed-group practices, have the appropriate management culture or the sophistication with data to do this effectively.
The Cost of Recapitalization
Most of the hospitals I’ve worked in are a jumble of incrementally newer additions built on a decades-old core facility. Clinicians tend to see the consequences as patients see them: not enough private rooms, outdated technology and equipment, poorly integrated computer and health IT systems, and inadequate storage for equipment. Your CFO certainly sees these same things, but has the additional challenge of trying to keep up with the demands for new facilities and capital purchases while maintaining the older physical plant and preserving the long-term financial strength of the organization. Even though roofing, HVAC, and new flooring are rarely as sexy as a new surgical robot, it won’t do much good to invest in that new OR equipment if the roof is leaking. And healthcare construction is really expensive, even more so because of entirely appropriate requirements that renovations bring older structures up to modern codes.