healthcare reform Managed Care

Tufts Medical Center’s CEO on the Escalating Costs of Healthcare

On Friday, March 19, 2010, Ellen Zane, the CEO of Tufts Medical Center and the Floating Hospital for Children testified before the Massachusetts Division of Healthcare Finance and Policy’s Health Care Provider and Payer Cost Trend Hearings. I’ve worked with Tufts Medical Center for several years now and have a great respect for Ellen Zane. She is one of the sharpest health system administrators I’ve ever met. And she tells it like it is! Below is the transcript of her testimony. It is enlightening and fascinating.

Division of Healthcare Finance and Policy
Health Care Provider and Payer Cost Trend Hearings
Testimony of Ellen Zane, President and CEO
Tufts Medical Center and Floating Hospital for Children
Friday, March 19, 2010

Good Morning, and thank you for this opportunity to testify. I am Ellen Zane, President and CEO of Tufts Medical Center and the Floating Hospital for Children. Today, I am NOT here in my capacity as chair of the Massachusetts Hospital Association. I would specifically like to commend you, Commissioner Morales, and your Division, along with the Attorney General, and her staff, for the reports you have produced. The AG and DHCFP reports have revealed how commercial insurance reimbursement for health services in Massachusetts has become completely divorced from quality, acuity, and the complexity of providers’ missions, and is driven largely by market clout and geographical dominance. This information has long been invisible to the public, and your agencies have done a great service in shining a light on the facts. It is my fervent hope that armed with this information, our Commonwealth will be able to make the informed decisions necessary to tame health costs.

I speak to you from many years of experience building systems of hospitals and doctors. Integrated systems can produce efficiencies and encourage better, more coordinated care for patients. But integration alone has not solved the problem of escalating costs. As these reports show, some of the most costly providers in the state are, in fact, integrated systems.

Similarly, global payments offer a remedy to the perverse incentives of the fee-for-service system, which encourage providers to offer more – not necessarily better – care. But global payments in and of themselves will not address the underlying cost drivers in our system. As we consider how to best reform our health care payment system, it is critical to understand that a low-cost, fee-for-service provider will have a much lower cost trend than a high-cost, globally paid provider. If we bake in the current market inequities on our way to a global payment system, we will have done nothing to slow the rise in health care costs.

This is not to say that integration and global payment shouldn’t happen, however, we need to be cognizant of the up front costs and investments necessary to develop successful systems.

  • The existing integrated delivery systems in our state have experienced 15-25 years of building enhanced infrastructure designed to improve quality and reduce inefficiencies. None of it was free, and the vast majority of this infrastructure was funded over many years by insurers through specific payments to providers who have the market clout to demand higher fees. Further, the data in your reports does not suggest the considerable investments in this infrastructure to date have led to lower costs despite these groups being capitated for many, many years.
  • Burgeoning systems like the New England Quality Care Alliance (NEQCA), Tufts Medical Center’s affiliated community physician group, have made do with far lower rates of payment and virtually no infrastructure funding. As a result, we have muchlower total medical expenses than those with elaborate infrastructure and lots of experience with capitation.
  • As shown in the AG’s report, Tufts Medical Center occupies a most interesting place in the market. It delivers some of the highest quality care (based on commonly accepted metrics), serves a patient base with acuity among the highest in the state, and is among the lowest cost. We are proud of our position as a value provider in the market; however, in this new world we will not be able to sustain this position without a greater level of investment.
  • I would like to take a moment to clarify a point about community benefits which seems to keep getting muddled in these discussions. Along with BMC and UMASS, Tufts Medical Center is one of the three teaching hospitals whose community benefits surpass the value of our tax breaks, unlike many of our other, highly paid, competitors. It is important to be clear that the community benefits we provide are a justification for tax exempt status, they are NOT a justification for high rates of reimbursement.

Value providers like Tufts Medical Center dearly wish we had the resources to broaden our participation in charitable endeavors. When we hear the magnanimous stories from highly reimbursed providers about their sending legions of clinicians to Haiti; supporting worthy community health centers; and expanding needed psychiatric services beyond what we already provide, we know the ability to do this comes as a result of high reimbursement rates which are simply not accessible to us or others. As it is, we are extremely resourceful in employing our limited resources to train the next generation of physicians for one of the country’s great medical schools….a school which trains more primary care physicians than our State’s other 3 medical schools; and we use our resources to conduct lifesaving research, and be prepared to respond in the event of a disaster here at home. We do so in a market that is defined by the reimbursement inequities that these reports have so well documented. It is irrefutable that we have not received our fair share of reimbursement, while these inequities have fattened the balance sheets of those that have benefited from them. This is why we support the transparency that both the DHCFP and AG reports have brought to bear.

  • If we do not address basic fee disparities and infrastructure disparities, the promise of global fees cannot be realized. Those providers who have high rates have had the luxury of investing in their infrastructure, facilitating their ability to recruit more physicians and, thus, to grow; while the lowest cost providers continue to be starved. It is critical that changes in payment and delivery reform do not build in the current market disparities by setting global budgets purely on historical levels, or enshrining contract practices which will perpetuate the current payment disparities. Not all systems are equally inefficient – a new system should not reward an organization with higher adjusted total costs, neither should it punish an already low cost provider.
  • Some other requirements for building an integrated system are:
  1. An actuarially sound and sufficiently sized patient base
  2. Free flow of timely and accurate information and data between providers and insurers which, to date has not occurred.
  3. Infrastructure: IT, analytical capacity, case managers, and all of the resources necessary to integrate care.

Integration is important, but there are costs and necessary steps to doing it, and to doing it right. Becoming an ACO doesn’t happen overnight, and it doesn’t happen in 5 years. As we pursue this system change I strongly encourage a trial period where we gather the data and the evidence necessary to succeed in the longer term. At Tufts Medical Center we firmly believe in providing the right care, in the right place, at the right time. Tufts Medical Center’s Distributed Academic Medical Center Model actively works to shift care to the most appropriate location, rather than pull patients to the center, as the traditional hub and spoke model in Boston is designed to do. We work with community hospital partners – many of whom are also among the lowest-cost providers in the state – to enable them to provide as much care as is possible and appropriate. By maintaining a strong presence as a lower cost, high quality alternative in the marketplace, we believe we have and will continue to contribute to a reduction in the overall healthcare cost trend.

Limited network products

For years we‘ve perpetuated the myth that no consumer wants a limited network, however, given today’s cost trends, it appears the time is now to create limited network products. I believe that there could be demand in certain sectors of the market for these products. Limited network products centered on cost-effective systems could provide much needed premium relief for businesses and consumers.

Government payment

I would be remiss if I did not also mention that one of the drivers of premium increases is cost shifting from government to private payers and cost shifting from government directly to providers through fee cuts. As an institution with over 20% Medicaid volume (not enough to be a DSH hospital, yet triple the percentage of many of our direct competitors with the exception of BMC) we experience the acute harm imposed by the shortfall in Medicaid reimbursement. The services demanded by government and needed by so many patients must be delivered, the next generations of physicians must be trained and cutting edge research must be conducted to address important public health matters. This was recognized when the Massachusetts healthcare reform law, Chapter 58, was promulgated; however, government has been unable to meet that commitment and shared responsibility. Therefore, the cost shift to providers and commercial insurers is greater than ever. The rate cuts to hospitals since the inception of Ch. 58 have helped sustain the momentum of healthcare reform and have undoubtedly created greater healthcare access to the citizens of the Commonwealth; however some providers—those without the market clout to shift to private payers– are, today, left in an unsustainable position. Cutting rates isn’t healthcare reform, it is simply cutting rates and shifting the state’s burden onto someone else. Further, the reality is that it is simply not possible to cross subsidize enough to make up the difference for the government payment shortfall.

As the DHCFP reports point, out in Mass. we have some of the richest benefits in the country, while we have determined these benefits are important to us, we must also recognize that they are expensive. While we can alter the trend in healthcare spending, government must also acknowledge that the robust healthcare services we want for our residents do not come free. Government plays an important role in an integrated healthcare system, and the rules for government can’t be different than the rules for the other players.

In closing, I will say there is no silver bullet and it must be an all hands on deck approach; providers and insurers, government, employers and consumers must all put some skin in the game to move forward on these issues.

Thank you again for the opportunity to testify today. (End of Testimony)

Post by Dan Dunlop, The Heathcare Marketer

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