Necessary Training for Physicians

Hospitalists: A Rapidly Growing Innovation

Physicians called “hospitalists” are rapidly taking over the care of inpatients in U.S. hospitals. Hospitalists, usually internists by training, assume responsibility for the care of inpatients from admission to discharge. They substitute for the patient’s primary physician for the period of the hospital stay and provide and/or coordinate all patient care by staff and specialists. Because hospitalists are based in the hospitals, they are able to provide more responsive and continuous care than patients’ primary physicians, whose hospital visits are brief and less frequent.

Because it is generally accepted that the presence of hospitalists shortens lengths of stay, improves the continuity and quality of hospital care, and has economic advantages to hospitals, hospitalist medicine is rapidly becoming the preferred model of inpatient care.43

Forces of Reform

The performance benchmarks of cost, quality, and access that with few exceptions, hospitals addressed for decades with moderate enthusiasm and little, if any, effect have become the survival criteria for the future. Provisions of the ACA will radically alter virtually all dimensions of hospitals’ institutional perceptions of themselves, their relationships with providers, payers, and health care consumers. A detailed description of all aspects of how the ACA will impact hospitals is beyond the scope of this text. It also is noted that proposed federal rules and regulations to implement the ACA are being revised as the implementation process proceeds. However, four areas of major significance for hospitals in the reformed system are described later in the belief that these, regardless of subsequent regulatory or rule revisions, will remain as foundational elements of the reformed system. The four elements are (1) population focus, (2) market consolidations through mergers and acquisitions, (3) accountable care organizations (ACOs), and (4) reimbursement and payment revisions. For purposes of explanation, these elements are discussed separately. However, as readers will realize, they are in fact interdependent and closely linked by the reformed system’s overall goals of increasing the quality of care by encouraging improved coordination and continuity that will result in reduced costs.

Population Focus

Perhaps the most enveloping changes of health reform for hospitals come with the new “population focus” of health care delivery, which enacts a radical shift from fee-for-service payments based on episodes of care to payment that rewards providers for keeping patients healthy and averting costly hospitalization.44 These changes are causing hospitals to reorient strategic planning about how they will measure success based on value delivered in terms of patient outcomes, rather than volume of services delivered. Since medicine and public health parted directions in the 1940s,45 “population health” was not embraced by individual providers and hospitals as providers and hospitals were reimbursed on a piecemeal, procedure-by-procedure basis, with no accountability for the overall health status of populations they treated. Health system reforms now require a population focus in which groups composed of many levels of health care providers including hospitals take responsibility for managing the total health spectrum of a group of patients “to achieve the best possible quality at minimum necessary cost.”46 This population focus is understandably foreign to hospitals accustomed to accountability for individual patient outcomes only within their institutions. Modern Health Care noted in its January 21, 2013 edition, “Hospitals can no longer live in a four–walls, brick and mortar world. Community-based care will be the future metric against which providers will be measured. That is, their reimbursement will be based on performance of care rendered in multiple provider sites by various types of caregivers, including in-home settings.”47

Market Consolidations: Mergers and Acquisitions

Facing a new reimbursement environment emphasizing the quality and continuity of care and now with collaborations mandated by provisions of the ACA, consolidation activities through mergers and acquisitions have accelerated at a feverish pace in the industry. As hospitals anticipated vastly increasing numbers of older Americans entering Medicare, continuing reductions in Medicare and commercial reimbursements, and state and federal budget crises, they initiated innovative consolidations and mergers well ahead of the passage of the ACA.48 Already financially stressed, hospitals in addition to declining reimbursements also anticipate increases in operating costs due to increased regulatory compliance, new technology requirements, and the desirability of increased employment of physicians.48,49 To positively position for evolving market trends, in the past several years and in unprecedented numbers, hospitals have joined with each other and with physician groups to create new or larger integrated systems of care to expand market share and accompanying negotiating power with payers and suppliers as the providers for ever larger population groups.48,50 Hospital merger and acquisition transactions increased by 18% in 2012 over 2011 with 109 deals affecting 352 facilities.50 These transactions included one deal in which 10 not-for-profit hospitals agreed to change the ownership of 160 hospitals.50 In certain markets, insurers are purchasing hospitals and physician practices with the goals of wielding greater control over the costs of care.51 All these developments underscore that previously accepted tenets of competition andcollaboration among providers and payers are changing significantly. As models of integrated care delivery continue gaining traction to align with reimbursement incentives for population-based health outcomes, forging of new and different relationships between and among components of the delivery and reimbursement systems can be expected to continue.

Accountable Care Organizations

The ACA adopted the ACO model, consisting of groups of providers and suppliers of health care, health-related services, and others involved in patient care that work together to coordinate care for the patients they serve under the original Medicare (not Medicare Advantage managed care) program.52ACOs are intended to address the well-acknowledged fragmentation of the health care system by ensuring care coordination across multiple providers for the entire spectrum of needs so that all patients receive timely and appropriate care, avoiding unnecessary duplication of services, medical emergencies, and hospitalizations.53 As early as 1998, private and state ACO-type demonstration projects began and ultimately reported measureable cost reductions and quality improvements.54 However, information on the impact of ACOs is limited with numerous questions remaining as the private and public sectors engage in widespread experimentation with the adoption of this model.54

Under the ACA, an ACO may include the following types of provider groups and suppliers of Medicare-covered services52:

 ACO professionals: physicians and hospitals in group practice arrangements

 Networks of individual practices of ACO professionals

 Partnerships or joint venture arrangements between hospitals and ACO professionals, or hospitals employing ACO professionals

 Other Medicare providers and suppliers as approved by the U.S. Department of Health and Human Services

Each ACO must be a legally constituted entity within its state and include health care providers, suppliers, and Medicare beneficiaries on its governing board55 and must take responsibility for at least 5,000 Medicare beneficiaries for a period of 3 years. To qualify for support under the ACA, ACOs must also meet Medicare-established quality measures of care appropriateness, coordination, timeliness, and safety.55 Providers’ participation in an ACO is voluntary and Medicare recipients participating in ACOs are not restricted from using physicians outside of their ACO.52

The payment structure for ACOs combines fee-for-service payments with shared savings and bonus payments linked with specific quality performance standards for which all providers in an ACO are accountable.56 Quality performance standards for ACOs will be assessed using a scoring methodology in five key areas: (1) patient and caregiver experience of care, (2) care coordination, (3) patient safety, (4) preventive health, and (5) at-risk population/frail elderly health.52 ACOs’ required collaborations with physicians and diverse providers and suppliers offer hospitals opportunities to combine their patient care expertise with the actuarial data analysis and risk management prowess of payers to develop, monitor, and manage effective and efficient systems of patient care.34 ACO opportunities will also entail many challenges including abilities to provide effective and efficient care across multiple settings from outpatient settings to hospitals, the ability to plan and control budgets, and the ability to maintain dynamic and current communication among participating providers and patients.34,57

Reimbursement and Payment Revisions

Various ACA provisions that affect hospitals use a combination of payment reforms to support the intentions of improving patient care quality, decreasing costs and improving population health. This section summarizes major provisions.

ACO Medicare Fee-for-Service Shared Savings Program

The ACA enables ACOs to share in savings to the federal government based on ACO performance in improving quality and reducing health care costs.58Medicare provider participation in this program is voluntary, but if selected, participation requires a 3-year commitment.59 The basis for the shared savings incentive is an ACO’s performance in reducing per capita Medicare expenditures below a benchmark determined by the CMS. Shared-savings payments equal the difference between the estimated per capita Medicare expenditures and the benchmark.60 Participating ACOs continue to receive the same fee-for-service payments as in the past, but can earn additional shared-savings amounts based on the quality performance standards discussed earlier in the “Accountable Care Organizations” section. A distinct feature of this program is that it allows ACOs to determine the level of financial risk (directly correlated with potential financial reward) it wishes to assume. The program offers providers a financially risk-free, “one-sided risk” option that can earn a maximum of 50% of savings realized each year and a “two-sided risk” option in which participants are at financial risk of losses for each of the 3-year contract period but can earn up to 60% of savings realized each year.59

Hospital Value-Based Purchasing (VBP) Program

CMS began implementing VBP pilot projects in 2003; this model has been replicated by private insurers as well, structured to provide incentives to discourage inappropriate, unnecessary, and costly care.61 Now mandated by the ACA, the VBP program applies to over 3,000 acute care Medicare participating hospitals, enabling them to earn incentive payments based on clinical outcomes and patient satisfaction. Hospitals with low case volumes and ones that offer only specific specialties such as psychiatry, long-term treatment, rehabilitation, and cancer treatment are exempted.62 The VBP uses 12 “clinical processes of care measures” and 8 “patient experience of care measures” to assess hospital performance on the parameters of “achievement” and “improvement.”63 The program is funded by annual percentage reductions in the standard reimbursement that Medicare pays all hospitals.64 The first wave of revised payments will occur in 2013. As reported in December 2012, 1,557 hospitals had earned incentive payments and 1,427 had incurred payment reductions of up to 1% of their standard reimbursement as a result of performance during the prior year.62 For some hospitals, incentive payments and reductions are inconsequential and for others, result in material financial.

Readmissions Reduction Program

Beginning October 1, 2012, the ACA requires the CMS to reduce payments to hospitals for the readmission of patients with specified diagnoses within 30 days of a prior hospitalization. The ACA also requires that readmission information be made public on the CMS “Hospital Compare” Website.65Annually, Medicare spends $17 billion or 20% of all Medicare fee-for-service payments for unplanned readmissions.66 The intent of the program is to encourage hospitals to improve the quality and continuity of care beyond the acute episode that resulted in the initial hospitalization. Penalty determinations are based on 3 prior years’ hospital discharge data.65 Payment reductions are based on a CMS formula that assigns each hospital a benchmark for excess readmissions for heart attack, heart failure, and pneumonia. In 2013, Medicare payments to more than 2,200 hospitals will be reduced by up to 1%, a loss of $300 million for the affected hospitals. Hospitals that do not improve will be penalized by up to 2% in 2014 and 3% in 2015.67 Recommendations to extend the program to readmissions of Medicare patients for all-causes are under deliberation.68 The program continues to generate significant debate with hospitals contending that many factors contributing to readmissions are not in their control.67

Bundled Payments for Care Improvement Initiative

The Bundled Payments for Care Improvement Initiative (BPCI) was developed by the CMS Center for Medicare & Medicaid Innovation (CMMI) that was created by the ACA. The BPCI recognizes that separate Medicare fee-for-service payments for individual services provided during a beneficiary’s single illness often result in fragmented care with minimal coordination across providers and settings and results in rewarding service quantity rather than quality. The BPCI is designed to test whether, as prior research has shown, bundled payments can align incentives for hospitals, post-acute care providers, physicians, and other health care personnel to work closely together across many settings to achieve improved patient outcomes at lower cost.69 Approval for participation in the BPCI is determined through an application process administered by the CMMI. ACOs and other collaboratives of hospitals, physicians, and community-based providers are eligible to apply. The BPCI offers four broadly defined models of care linking payments for multiple services delivered to beneficiaries during an episode of care.69 Model 1 defines an episode of care as an inpatient stay in an acute care hospital. In this model, Medicare pays the hospital an amount discounted from standard Medicare reimbursement and continues to pay physicians their usual fee-for-service amounts. Under defined circumstances, hospitals and physicians are permitted to share in Medicare savings that result from their redesigned care strategies.69 In Models 2, 3, and 4, participants may select among 48 different clinically defined episodes of care. Models 2 and 3 use a retrospective bundled payment arrangement where expenditures are settled against a Medicare-determined discounted target price based on a participant’s historical fee-for-service payments for the selected episode of care. Any reduction in expenditures beyond the discount reflected in the target price is paid to participants. Under Model 4, CMS makes a prospectively determined, single lump sum payment to a hospital that encompasses all services furnished during an inpatient stay. Physicians and other practitioners are reimbursed by the hospital from the bundled, lump sum payment.70,71 In January 2013, CMS announced that over 450 health care organizations including not-for-profit and for-profit hospitals, academic medical centers, physician-owned facilities, and postacute providers had joined the BPCI program.71

The foregoing descriptions of how the ACA affects hospital performance provide only a snapshot of initiatives. For more in-depth information, readers are strongly encouraged to access the Websites included in the references to this chapter.

Continuing Change

U.S. hospitals will retain their core roles as the purveyors of the most technologically sophisticated care in the world, the educational practice platforms of physicians and other health professionals, and the sites of clinical research. In the frenetic environment of health system reforms, hospitals now assume yet another role as one component of an integrated system and continuum of community-based care.

Debates and analyses will continue regarding hospitals’ roles in the reformed system and health care marketplace. Results of government and private entity experiments with the reconfigured roles of hospitals in a new population-focused, value-driven delivery system will yield numerous opportunities for continued refinements that affect both the quality and costs of care. There are reasons for optimism in the prospect of ACOs with hospitals as major participants, providing excellent patient-centered coordination of care that successfully addresses the negative hallmarks of the health care delivery system—fragmentation, duplication, medical errors, and excessive costs. Observers are expressing concern however, that the newly established ACOs are joining health care organizations that otherwise would compete with each other, thus creating networks with dangerous market power.72 Health care market analysts also have pointed out that hospital mergers can actually increase costs that are passed on to consumers.73 Ongoing market restructuring through hospital mergers and consolidations will test the impacts of reshuffling providers’ and payers’ relative positions and can also be expected to spawn ongoing antitrust and related legal issues.74 Nonetheless, positive reports of the impacts of hospital consolidations on quality are emerging.75 In a study of 2,791 short-term, general, nonfederal hospitals comparing performance on the five parameters of risk-adjusted mortality rate, risk-adjusted complications index, risk-adjusted patient safety index, CMS “Hospital Compare” indicators, and 30-day mortality rates for selected admission diagnoses, findings indicated that hospitals that are members of systems “significantly outperform and improve significantly faster than independent hospitals.”75While hospitals of the future will no longer be the axis on which the rest of the system turns as they were in the past, they will be essential components of integrated systems of community-based care.

Recent evidence bears out that there will be great variation in the capability of America’s thousands of hospitals to adjust to radical reversals of form and function required by the ACA and other reforms. It is likely that the Darwinian law of nature, survival of the fittest, will determine which hospitals remain to serve the American public in the future.