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WSJ: The Future of U.S. Health Care

Posted Dec 22 2011 7:00am
Call it the united state of health care.

Amid enormous pressure to cut costs, improve care and prepare for changes tied to the f, ,

Hospitals  are bulking up into They are exploring insurance-like setups, including direct approaches to employers that

On the other side,  insurers  are , or. And  employers  are starting to take a far more active role in their  workers’ care .

Such shifts have been gathering force for a while, but the economic downturn has accelerated the push for efficiency. The federal legislation, which creates new health-insurance marketplaces and requires most people to carry coverage, may unleash additional demand for health care once it fully takes effect in 2014. Even if the Supreme Court unwinds part of the law, the changes occurring now aren’t likely to stop because the pressure to reduce the price of health coverage won’t go away.

“We’re seeing a marketplace reacting to an economic imperative,” says Michael O. Leavitt, a former U.S. Secretary of Health and Human Services who is now chairman of a health-information company. “The new delivery models are far more integrated.”

in a series of high-profile deals and quiet, under-the-radar developments. For a close look at what they mean, a doctor, a hospital CEO, an insurance-company official, a human-resources executive and a patienton the front lines as much of the $2.6 trillion U.S. health-care industry tries to remake itself.

Their stories show where health care is trying to go. The picture wouldn’t be complete without a reminder of where it has been. Many of these same efforts were attempted in the 1990s, and they often failed. Experts caution that there are many signs the current flurry of activity could result in the same problems, with less margin for error in today’s unforgiving economic environment.

wsj WSJ: The Future of U.S. Health Care Ultimately, like Dan McCullough.

Dr. McCullough, who works for a hospital system in Beverly, Mass., Hospitals and insurers are both rushing to employ and ally with primary-care doctors in all of their new schemes to blend their various functions and

But doctors, the gatekeepers of the system, often react sharply to efforts to control their practice styles. A survey this spring of medical administrators and doctors by health-staffing firm AMN Healthcare found that .

In Dr. McCullough’s case, , The quality portion involves measures like patients’ blood-pressure control and preventive care like mammograms. The including and . But much of the rest of Dr. McCullough’s pay is still tied to his productivity, a typical style of doctor compensation that parallels the traditional fee-for-service model.

wsj1 WSJ: The Future of U.S. Health Care

A doctor works for a hospital, paid partly on quality and efficiency measures.

Dr. McCullough’s current pay structure took effect last year, when he started working that enables providers to effectively earn more if they keep costs down and meet quality goals. Upping the ante, Dr. McCullough’s employer, Northeast Health System, ties an additional chunk of his pay to quality and patient-satisfaction measures.

Dr. McCullough, 44 years old, says he likes the incentives. It used to be true that “quality doesn’t pay the bills,” he says. Now he focuses more on , including hiring a new case manager. He says the new payment method also makes him think twice about allowing some services or specialty care from doctors outside his hospital’s network. he “would just rubber-stamp the referral,” he says.”

Recently, he got a call from a doctor’s office because one of his patients had gone there seeking surgery for chronic heartburn. Dr. McCullough refused to sign off. Instead, he called the patient and asked him to come in for an appointment. After he prescribed a stronger heartburn medication, the man, who had seen the surgery advertised, decided he no longer needed the procedure.

Dr. McCullough, who has a master’s degree in medical ethics, says he doesn’t skimp on care that he believes will help patients. Indeed, many aren’t even aware that his compensation has changed. Sometimes, though, patients question his motives. One woman wanted an ovarian-cancer test because a friend of hers had suffered from the disease, but Dr. McCullough refused to order it. The patient was “a little miffed,” and she said “it’s because the insurance company doesn’t want to pay for it,” Dr. McCullough says. He responded that there . Still, he says, such encounters are “not the highlight of my day.”

An older, recently widowed patient who kept going to the emergency room when he ran out of his asthma medication got a house call from Dr. McCullough, whose office then helped get the man into adult day care. The traditional fee-for-service model has no reward for that, he says. But “we got really aggressive with him not just because it’s the right thing to do, but because we were incentivized to do it.”

Jim Taylor, the chief executive of the University of Louisville Hospital, says his institution’s future depends on an Now, he has to persuade others that he’s right.

wsj2 WSJ: The Future of U.S. Health Care In June, Mr. Taylor helped unveil , an eight-hospital group based in Lexington, Ky., that is part of Catholic Health Initiatives of Englewood, Colo.

If the deal is approved by the state’s governor and the local Catholic archbishop, the nonprofit Catholic Health Initiatives will provide a $320 million infusion of cash and . It would also account for 22% of the acute-care beds in Louisville and 13% of those statewide.

Mr. Taylor says the money, along with the better bond rating the merged combination will get because of Catholic Health’s backing, will provide a vital buttress for University Hospital. “We couldn’t grow, and our role was going to decline as we face revenue pressures” from declining government reimbursement, says Mr. Taylor, 64, a second-generation hospital executive.

Mr. Taylor says University is in the black now but can’t afford to buy advanced electronic medical records or upgrade and expand its main facility, built in 1980. University, which is the region’s only adult trauma center and main safety-net hospital, is routinely overcrowded, particularly its emergency department, a spokesman says. Over the years, executives have drawn up plans to build a new $150 million patient tower and spend $33 million to expand emergency capacity, among other options, but had to shelve them. Mr. Taylor and other executives say

Nonprofit hospitals had their slowest revenue growth in at least two decades last year, according to Moody’s Investors Service. The financial challenge is leading many to merge in hopes of cutting expenses and gaining leverage in negotiations with insurers. In the first three quarters of this year, , compared with 53 at that point last year. The full number for 2010, 75, was already the highest since 2001.

Often, the debate centers around whether a for-profit company based elsewhere will continue to provide charity care and meet other local needs.

In Mr. Taylor’s case, the controversy has mostly focused The buzz-saw of resistance has put Mr. Taylor in an unaccustomed spotlight after 15 years as the hospital’s CEO. A community forum on the deal drew more than 200 questions. There are also dueling lawsuits over whether University Hospital merger documents are covered under state public-records laws.

wsj3 WSJ: The Future of U.S. Health Care

A hospital tries to merge into a huge new system of hospitals and doctors.

“I don’t think a hospital that belongs to the people of Kentucky should be merged and be dictated to by people who put restrictions on certain procedures,” says Rep. Tom Burch, a Democrat who chairs the health and welfare committee in the state’s House of Representatives. “It has hit a sore spot with people.”

Mr. Taylor says the merger won’t significantly affect service offerings at his hospital, which doesn’t currently provide elective abortions. University Hospital has made arrangements for women who want tubal ligations to get them at a different facility, he says.

The new network will have more than 3,000 doctors. Though University Hospital doesn’t employ its own physicians, the other two merger partners have significantly expanded their employed doctor staffs in recent years, including primary-care doctors, a common pattern in U.S. hospitals recently.

and t says Paul Edgett III, a Catholic Health Initiatives senior vice president. It will look at , he said, Such setups, under which hospitals can sometimes lose money if costs run too high, move hospitals into a space that has largely been the purview of health insurers.

Mr. Taylor said that on its own, his hospital is “poorly positioned” to do such deals, because it’s “too small, too limited.”

Negotiations between health insurers and hospitals typically focus on clashes over payment rates. Chris Day, an executive with Aetna Inc., is supposed to change that.

wsj4 WSJ: The Future of U.S. Health Care Mr. Day, 36, spearheads Aetna’s efforts The details vary, but the main idea is that Aetna and the provider try to work together to trim costs and track the quality of care. In the most ambitious cases, they are creating

Instead of Aetna simply paying the hospital for services, These plans aim to leverage the hospital’s local brand-name recognition and the insurer’s back-office know-how.

They also may be the insurer’s best shot at competing in many of the new state-based health-insurance marketplaces where some 24 million people are eventually expected to buy coverage. Chief Executive Mark Bertolini recently highlighted the new “HMOs on steroids” as a key Aetna initiative at an investor conference.

But after years of head-butting between the two industries, a warm-and-fuzzy partnership isn’t always an easy sell. “When I walk in that room, I’m seen as a health-plan person,” says Mr. Day, who estimates that he has met with more than 100 medical providers around the country. Sometimes he breaks the ice by referring to his own background, which includes running a sleep clinic and an early stint as a hospital data-entry clerk.

Aetna recently unveiled a , a not-for-profit 23-hospital system based in Phoenix, Ariz., after more than a year of talks. At one point early on, Mr. Day had to keep some locally based Aetna executives out of key strategy meetings with Banner. After one of them raised the idea that Banner might need to grant some rate discounts, a Banner official suggested “we needed to find ways to keep the conversations strategic,” Mr. Day says.

wsj5 WSJ: The Future of U.S. Health Care

An insurer forges partnerships with health providers that can blur their traditional roles.

On the other side, Chuck Lehn, vice president of managed care for Banner Health, says Mr. Day earned his trust by sharing closely held information, including certain details of how the insurer sets premiums. he says, though both sides will share its earnings.

“We shared a lot more information than we normally would” with an insurer, including detailed cost and utilization data, Mr. Lehn says. “I remember thinking, ‘I’m putting my total trust and faith that they’re not going to use this’” against Banner to winch down rates.

such as relatively high use of imaging scans by some Banner doctors, Mr. Lehn says.

During a different effort to strike a deal with a provider, Mr. Day’s talks broke down for months because a separate contract-rate negotiation between the hospital system and local Aetna executives got so contentious that details leaked to the local media. In another case, a mistrustful hospital executive demanded written pledges that his company’s patient information wouldn’t be used in setting the patients’ insurance rates.

Like other insurers, Aetna is making moves into the business of providing services to providers partly to prepare for another change tied to the federal overhaul law. It requires health plans to spend a set share of premium dollars on health-care expenses, which can crimp insurance profits.

A few years ago, Robert Jacobs, a human-resources executive at MasterBrand Cabinets, felt he was running out of options to blunt annual double-digit health-coverage price increases. Employees had already shouldered as much as they could bear, he felt. He had hit the limit of discounts from health providers. Wellness programs like free health-club memberships had shown little impact. wsj6 WSJ: The Future of U.S. Health Care

Then Mr. Jacobs read a research report that said about That persuaded him to try a radical new tack: Last year, MasterBrand, which has Those who score poorly on measures such as cholesterol, blood pressure, body-mass index and tobacco use

“We had to do something more,” Mr. Jacobs says. After wood and salaries, health care is the company’s third-biggest expense, and “I can’t pass that along to my customers in prices on kitchen cabinets.”

The program at MasterBrand, a unit of Fortune Brands Home & Security  Inc., is an example of companies’ MasterBrand, like others, offers the health tests right at the offices and factories where its employees work.

A survey this year by consulting firm Towers Watson and the National Business Group on Health found that and . Forty-three percent of the biggest employers are taking an even more direct path into health care by according to a survey by Mercer.

Some of these efforts are controversial. In a letter to federal regulators in March, groups including the American Heart Association, the American Diabetes Association and the American Cancer Society’s advocacy arm said such programs were backed by little evidence and risked discrimination against people based on their health.

Mr. Jacobs, a blunt-spoken 60-year-old who himself is managing elevated blood pressure, says he is giving employees accountability. “It’s almost like going to a risk-based insurance like automotive,” he says. “If you have a health risk you’re not managing, you’ll pay a little more.”

wsj7 WSJ: The Future of U.S. Health Care

An employer provides health tests and gives workers incentives to do well on them.

So far, MasterBrand hasn’t set very stringent standards, he says. Also, the most a worker has to pay extra based on test results is $10.50 a week, while a person with the best health indicators gets a $2-a-week discount.

The program is administered by Bravo Wellness LLC, a vendor that oversees an appeals process that is supposed to let workers opt out without penalty or aim for alternative goals if they have a medical condition that makes it impossible to achieve the targets.

Around a half-dozen workers got urgent calls after they took the health tests, warning they were in imminent danger of heart attacks, Mr. Jacobs says, and a couple had heart-related surgery.

He also points to employees like Sandra Kaufman, 47, who works in shipping at a MasterBrand facility in Goshen, Ind. She says she initially thought the program was “an invasion of my privacy.” But she couldn’t afford the penalty for refusing to participate, so before it launched two summers ago, she went to a doctor for the first time in years.

Mr. Jacobs says he fielded complaints when the program was started. One man asked him angrily, “Why are you doing this to us?” The worker didn’t think the company should be imposing health standards. “That’s personal,” he said, according to Mr. Jacobs, who says he responded that MasterBrand had a stake as well, since

The worker is now a “willing participant’‘ in the program, Mr. Jacobs says.

wsj8 WSJ: The Future of U.S. Health Care On a recent day, Louis E. Kauder Jr., an 86-year-old suffering from advanced diabetes, arrived at a storefront clinic in La Mirada, Calif., for his weekly checkup.

Nurse Eugenia Chang looked at his blood-sugar result and started quizzing him. What had he eaten? Mr. Kauder confessed to a dinner the night before of macaroni and cheese and chocolate chips. “Your sugar is a lot higher than normal,” she chided, urging him to avoid desserts and eat more protein.

Then she zeroed in on his toe, which had a small sore. Was he wearing the protective shoes the clinic provided? She painted the toe with a disinfectant and wrapped it in gauze.

Finally, she examined a gaping six-inch-long wound on Mr. Kauder’s left calf. That was improving, she said, and she would continue the daily home visits from a nurse to dress it.

Hospitals and doctors are increasingly promoting this type of health care – – as the best way to treat chronically sick patients.

But Mr. Kauder’s clinic is different: that offers Medicare Advantage plans. CareMore says it can improve patients’ health and save money in the long run by taking an active hand in their care.

It’s a bet that more insurers are making, hoping to trim costs and lock in some doctors in case the influx of newly insured consumers leads to a shortage. CareMore was bought in August for slightly less than $800 million by  WellPoint  Inc. The big insurer said it plans to more than double the number of “care centers” that CareMore operates and spread it across the country.

Last December,  Humana  Inc. And Humana late last month announced it would buy SeniorBridge, which focuses on care for complex chronic conditions.

UnitedHealth Group  Inc.’s Optum health-services arm recently purchased the operations of Monarch HealthCare, an Irvine, Calif., association that includes some 2,300 doctors, the latest of several doctor groups in which the company has taken ownership stakes.  Cigna Corp. announced in October that it would spend $3.8 billion to buy  HealthSpring  Inc., a Medicare Advantage carrier that works closely with doctors and owns some of its own clinics.

CareMore says the heavy upfront investment it makes in preventive care for patients like Mr. Kauder pays off because They have fewer readmissions and lower rates of events like heart attacks, says the company’s chief medical officer, Ken Kim.

, Dr. Kim says. , he says, and .

“We get to them at the front end” and keep medical conditions from worsening to catastrophic levels, he says. As a result, CareMore is more profitable than many rival Medicare plans, he adds.

Mr. Kauder started with CareMore last October. “They really take care of me,” he says. He doesn’t pay a premium for the CareMore Medicare Advantage plan, and he doesn’t have out-of-pocket fees to see CareMore staff, though he does pay charges for some other things, like certain medications.

His case illustrates many of the challenges of managing chronically ill patients. After repeated medication tweaks and sessions with a nutritionist, Mr. Kauder’s blood sugar level has improved, but it’s still not at CareMore’s target. The retired auto mechanic also has heart problems, and he had a bypass operation a few years ago.

A CareMore staffer asked a visiting wound-care nurse whether his home, where he lives alone, showed signs of neglect such as rotting food. On another occasion, when a visiting nurse spotted Mr. Kauder trying to clamber over a wall in his backyard, she informed clinic personnel. A case manager phoned Mr. Kauder to make sure he wasn’t showing signs of dementia and booked him for an immediate checkup.

It became infected, and his home-visit nurse started administering an intravenous antibiotic. In June, he ended up in the emergency room after he tripped and opened up the wound, which bled heavily. Doctors at the hospital urged him to consider amputating the limb below the knee.

“I said, no way,” says Mr. Kauder, whose mother lost a leg to diabetes. After a night in the hospital, where CareMore doctors visited him, he returned home. Since then, he hasn’t been in the hospital, and the wound has improved. He’s off the IV antibiotic.

Dr. Kim, the CareMore chief medical officer, who wasn’t personally involved in Mr. Kauder’s case, says the care almost certainly saved his leg.

WSJ: The Future of U.S. Health Care

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