Hospitals need to overhaul their processes so they can help the un- and under-insured stay healthy.

Many people running health care institutions tell me that they have been fighting the fight, learning to be nimble, transforming their cultures, making big changes as the landscape rearranges itself like a really bad day along the San Andreas Fault. But in comparison with the actual scale of the problems, most of the business models and strategies in health care have been sleeping like overfed dogs. It’s wake-up time in America.

Nowhere is the problem defined more clearly than in this question: How can we deal with the tens of millions of new Medicaid recipients, the tens of millions of still-uninsured poor, and the increasing numbers of the underinsured?

Today’s hospital executives formed their careers around the “volume” question: “How do we get more and better-paying customers into and through our system?” This is a different era. Most markets do not have enough medical care to go around, between an aging population, expanded Medicaid in 25 states, and expanded numbers of insured in all states.

When there is not enough of what you are selling to go around, operating inefficiently leads to choking on volume. In order to survive under any business model we must get the volume down and the value up.

First: What can we expect in the coming years?

The Future of Medicaid, the Uninsured and the Underinsured

Medicaid numbers are astonishing if you are not used to them. Even before the projected expansion, at some time during an average year about 72 million people, close to a quarter of all Americans, are on Medicaid. At any given moment, it’s over 50 million. Medicaid is an open-ended program: When more people are eligible, or sick, or have more complex diseases, the states and the federal government pay more. By law, states have to provide certain minimum benefits for certain defined poor populations, such as children, pregnant women, the disabled and the elderly. The only control states have over Medicaid costs is to cut reimbursements and to control utilization by making health care massively inconvenient to access.

The economy. The economy appears to have undergone real structural change. In this new economy a lower proportion of the working age population is able to find work with a living wage or start a sustaining business. Income inequality is still growing, with almost all of the new wealth created in the slowly recovering economy going to those few who are already well off. So we can expect more Medicaid-eligible people every year.

Expansion. In over half the states, Medicaid eligibility has been expanded by the Affordable Care Act (ACA) to include all adults with income below 138 percent of the federal poverty level (FPL). More states will likely accept the expansion. Turning away federal money that would benefit your citizens and pay for thousands of jobs (as studies show) may be ideologically pure, but politically and economically it is a very shaky stance. It will become shakier as people in neighboring states reap the benefits, while yours do not.

Will those newly covered individuals use more health care or less? Contrary to a common assumption, studies show that just getting people covered does not in itself improve their health, and those newly insured patients will likely use the emergency department (ED) 40 percent more than they did when uninsured, unless the system finds some less expensive way to serve their needs. The “system,” in this case, is you.

Underinsured. The ACA will actually expand the ranks of the underinsured (those whose insurance is weak enough that they will often act as if they are uninsured). The “bronze” plans cover only 60 percent of most expenses; the “silver” only 70 percent, well below the 80 percent typical of corporate plans, with much higher deductibles. The feds also allow, in fact encourage, states to add deductibles and co-pay requirements to Medicaid even for the poorest. And many states that are expanding eligibility are actively cutting reimbursements, narrowing networks and reducing benefits.

Out-of-luck demographics. At the same time many people, especially in the just pre-Medicare demographic, will not want to accept Medicaid, because they still have some assets, typically equity in a house, that Medicaid would require them to liquidate and “spend down.” In the states that do not expand Medicaid eligibility, the uninsured non-disabled adult below 138 percent of the FPL is just plain out of luck, with no ACA subsidies for insurance, but is still hit with the ACA tax penalty.

So expect still substantial numbers of uninsured — 26 million by 2016 by Congressional Budget Office estimates — as well as growing Medicaid rolls in all states, even those that do not expand eligibility.

Reform? “Deficit hawk” politicians focus on Medicaid because it is growing and open ended. Proposals to reform Medicaid largely would make it into block grants to the states, which Congress could then throttle downward. No proposed reforms contemplate putting more money into Medicaid. Under any reasonably expectable political scenario we can expect ever-narrowing reimbursements.

Health care execs can be forgiven for feeling that they are in some zombie movie, pursued by teeming masses of people with Medicaid coverage, or no coverage at all. But it’s time to stop hiding. It’s time to leave behind the old tactics of divert, dump and deny once and for all, and to push instead for radical new ways of providing health care — good, quality care — to those who can least afford it.

What to do?

Get Costs Down

Making your operations lean and smart is important under any business model, for any revenue stream. In dealing with the uninsured and Medicaid recipients, it is paramount.

The core of this effort is redesigning workflow and processes, right from the threshold of the ED (usually the gateway for 70 percent to 80 percent of your patient flow), through all in-patient and outpatient services, labs, pharmacy. It’s about instituting “split-flow” fast triage patient handling at the threshold, getting the door-to-doc time from the national average of 30 minutes down to 10 minutes or less, getting the ED length of stay down below four hours, and getting the percentage of patients who leave your ED waiting room in frustration down to zero.

This attempt pushes back on workflows across the institution, so it is about robust and powerful systems of bed control and patient tracking, about lean and efficient housekeeping and transportation, about high-tech instant registration protocols.

There is no way to survive the coming rise in Medicaid recipients, aging boomers, still-uninsured and underinsured without a lean, efficient organization.

Prepare for “Value-Based Insurance”

Some states such as South Carolina and Michigan are applying the “value-based” rubric to Medicaid: Rather than pay set percentages of a hospital’s price for whatever is on offer, the state will pay a greater percentage of the cost for clearly valuable therapies and tests, and less or zero for therapies and tests of doubtful utility, such as induced labor or caesareans before 39 weeks of gestation, complex back surgery for simple back pain, or arthroscopic knee surgery to repair a torn meniscus.

Oregon introduced such a plan for its public employees in 2010. Since then, premiums that had been rising an average of 7 percent per year have been dropping 0.5 percent per year.

This practice will spread further in both private insurance and Medicaid, along with similar practices such as reference pricing, paying for bundles, and domestic medical tourism. If you are profiting from procedures likely to be deemed unnecessary or “less than optimal,” or priced above the market, these practices will hit you hard. But in the coming era of medical scarcity, you need to free up capacity to do what truly adds value.

Prepare for “Value-Based Medicine”

Ask yourself the market question: What does this portion of the market actually need? What is needed is not just reactive, episodic, high-cost treatment; it is active health management. So give them instead what they truly need: Divert these populations into “value-based” programs.

Master the accountable care organization (ACO) and ACO-like organizational schemes that do better by doing more on the front end, closer to the customer. (Consider your first try a prototype. It will not work right out of the box. Its purpose is to see how to build the second and third versions that will work better.) Build medical homes specifically aimed at these populations. Cooperate as much as possible with federally qualified community health clinics in your area.

Build trust-based disease management programs and visiting nurse programs. “Trust-based” means actual face-to-face encounters with real people whom the patient will trust based on their expertise, degrees and certifications, their prior relationship, and their employer (the medical group or the health system, not the insurance company). Examples to model include the Iowa Chronic Care Consortium, the Camden [New Jersey] Coalition of Healthcare Providers, and the Yakima Valley Farmworkers Cooperative’s chain of low-cost clinics.

The Center for Medicaid and CHIP (Children’s Health Insurance Program) Services is giving grants for building similar programs targeting “super utilizers” to get costs down by improving their health.

Offer insurance yourself or in alliance with a not-for-profit cooperative (like Molino in many states) that is tailored to the low-income population, tied to the low-cost clinics, and shaped to finance the trust-based health management programs.

Lobby for Reform

First, if your state does not yet accept the federal Medicaid expansion, continue to lobby for that. Frame it not as “save the poor people” legislation but as “save our hospitals and support the economy” legislation. But further: At the state and federal level, lobby for rule changes that shift Medicaid dollars from episodic acute fee-for-service treatment to “value-based” programs that care for the poor more efficiently.

Further: Work with hospitals in your state, with your state health department, and the Centers for Medicare & Medicaid Services, to maximize the value of the public health dollar by establishing something like Oregon’s Coordinated Care Organizations. CCOs are “hyper-local,” with 15 of them around the state. They can spend Medicaid money not only on coordinating traditional reactive medical care, but also on remediating conditions that lead directly and measurably to illness. They can buy an air conditioner for an elderly poor woman who would otherwise be hospitalized with congestive heart failure in a heat wave, or pay for mold remediation, often through the hands-on, face-to-face work of “patient guides” who put the “trust” in “trust-based.”

Stop Charging the Uninsured Poor Full “Billed Charges”

Chief financial officers of hospitals and health care institutions dismiss “charge master rates” as phantoms that “nobody pays.” They are merely a starting point for negotiations with payers. But there is one group that is commonly billed full freight: the uninsured poor, those least able to pay up. Some states, including California, Illinois, Maryland, Minnesota, New Hampshire and New York, have passed legislation shielding the uninsured poor from these “phantom” rates that currently average about 400 percent of Medicare rates.

California, in its Hospital Fair Pricing Act passed in 2006 and expanded in 2011, requires that billing for anyone treated in or admitted through the ED whose household income is at or below 350 percent of the FPL (or whose out-of-pocket medical expenses for the year already exceed 10 percent of their income) can be billed no more than the most generous government payer would be billed — in effect, at Medicare rates. The act does not require anyone to give free care, yet some 97 percent of reporting California hospitals have gone further, pledging free care to anyone whose income is at or below 100 percent of FPL. This act evidently has not led California hospitals into financial disaster, and has helped many poor uninsured patients avoid medical bankruptcy.

To avoid putting themselves at a competitive disadvantage and attracting more than their share of the uninsured or underinsured, it is best for hospitals not to go it alone but to lobby for such legislation to be passed in their own state.

The Path Forward

The path forward is not clear. What is clear is that many health care organizations will not survive the waves of newly insured, underinsured and Medicaid beneficiaries if they continue to treat them reactively, in the most expensive way possible. We simply must try bold new methods and programs. We must reshape ourselves not just to treat and bill, but to give the maximum value for every dime of tax money by helping poor people get and stay healthy through any means necessary.

(Originally published by the American Hospital Association’s Hospitals And Health Networks (H&HN) Daily on January 28, 2014)

photo: Rich and poor