Is There a Solution?

1. Is There a Solution? Chapter 16 Code Blue Health Science Edition 4

2. Wes Douglas’ Search for Solutions

3. Visit with Dr. Charles Stoker • Wes decides to visit Dr. Charles Stoker, a former hospital administrator who has been hired to start the University of Utah Medical Center’s first Health Maintenance Organization. University of Utah Medical Center

4. The Impact of Pay on Performance • Both institutions and individuals are very sensitive to pay. • The way we structure pay impacts performance. • Some companies have found, for example, that salesmen who are paid a commission based on sales sell more products than those who receive a salary.

5. The Impact of Pay on Performance • Hospitals and physicians also are influenced by the way they are paid.

6. Fee-for-Service • Physicians traditionally were paid under a fee-for-service payment system. • The more services they provided the more they were paid. • Services that paid less, such as preventive care (which actually reduced illness and, therefore, the services needed by patients) received less attention than services that paid more.

7. Cost Reimbursement • Hospitals were paid under a form of fee-for-service called cost reimbursement. • They were reimbursed total costs plus a small margin for profit. • The more services they provided, the more money they made.

8. Incentives Under Both Systems Fee-for-service and cost reimbursement provided few incentives for physicians and hospitals to control costs. This was not a problem prior to the 1970s when healthcare costs started to take off. As costs started to escalate, however, business leaders, unions and the government started looking for a better way.

9. Regulation Initially, some government entities felt that regulation was the solution. They wanted to treat hospitals like utilities. They felt it would help to regulate their prices through some sort of a regulatory commission.

10. Regulation Regulation didn’t work well, as the healthcare industry was too complicated for any one regulating body. Utilities such as power plants have one product (electricity). Hospitals have thousands of products and services.

11. Incentive Payment • The next thing tried was incentive payment. • Provide incentives through pay for doctors and hospitals to control costs. • How this works is best illustrated by looking at another industry—the construction industry.

12. Incentive Payment Assume you are a housing contractor that builds custom homes.

13. Incentive Payment • There are two types of contracts you can sign to build a home. • A cost-plus profit contract that pays you all of your costs, regardless of any overruns. • A fixed price contract that only pays you the amount contracted for, regardless of what it actually cost to build the house.

14. Incentive Payments Which one of these do you think provides the most incentive for you to control costs when building a home for a customer?

15. Incentive Payment In the early 1980s those responsible for administering the government’s Medicare program decided that if they switched from a “cost-plus” payment system to a “fixed price” payment system, doctors and hospitals would respond by reducing unnecessary costs.

16. Here’s What They Did Medicare classified all illnesses into approximately 380 categories called Diagnosis Related Groups (DRGs). For each of these, they assigned a fixed payment. If the hospital was able to treat the patient for less than the fixed payment, they made a profit. If it cost more, the hospital lost money.

17. Did it Work? Yes! Hospitals during the 1970s had overbuilt and the incentive was to fill them. They did this by encouraging physicians (directly or indirectly) to admit more patients and to keep them longer. People were in the hospital that could just as easily (and much less expensively) have been treated in a clinic or at home.

18. Did it Work? Of course, one can always overdue it—finding a balance is the key to an efficient health care system. The first year after the implementation of DRG reimbursement the average length of stay for patients in the hospital dropped from 13 days to 7 days in the United States. Billions of dollars were saved. There is evidence that doctors and administrators more closely monitored the costs of drugs, equipment and so on.

19. Another Form of Prospective Payment Another form of prospective payment was capitation payment. In capitation payment there is a fixed price on the amount an insurance company will pay a hospital per enrolled patient per month, regardless of the services they provide.

20. Another Form of Prospective Payment Example: An insurance company pays a hospital $100 per month for every patient in their program to provide any hospital care that may be needed during the calendar year. There is no additional charge by the hospital if a patient is admitted, regardless of how much the admission costs the hospital. There is no refund if the patient is not admitted.

21. Another Form of Prospective Payment Under capitation payment, hospitals make money by keeping patients well and out of the hospital, and by getting them well as fast as possible when they actually become ill.

22. DRG and Capitation Payment There is evidence that HMOs did control costs while providing a high quality of care. Studies show that HMOs provided more preventive care than fee-for-service practices. There is also evidence that they made a greater effort to detect illnesses, such as cancer, sooner through screening which both saved lives and reduced costs.

23. The Impact of Payment No form of prospective payment is without its problems. The concern is always that a healthcare provider might provide too little care. There are incentives against that, such as the threat of a malpractice suit.

24. The Impact of Payment Also, if people are unhappy with their insurance company, doctor, or hospital they can always move to the competition. Nevertheless, achieving the proper balance is always a concern.

25. The Impact of Payment There is much more that could be said about prospective payment (another word for fixed price payment) as a way of controlling unnecessary costs, but that will suffice for this chapter.

26. The End The Kaiser Permanente HMO Building in Irvine, California

27. Listening Skills Appendix to Chapter 16

28. Listening Skills Listening may seem like an inborn ability, but active listening requires practice and skill. Have you ever had a conversation with someone who is distracted? Listening is an important part of successful communication.

29. Characteristics of good listeners include . . . An interest in the subject An ability to focus A desire to know, versus a desire to be known The ability to set aside prejudice The ability to read body language Patience – a willingness to give the speaker time A willingness to put oneself into another’s situation

30. Tips for increasing your listening skills Talk less, listen more. Pay attention to what the speaker is saying, instead of thinking about what you are going to say next.

31. Tips for increasing your listening skills Give feedback – paraphrase or restate what the other person is saying Offer your interpretation

32. Tips for increasing your listening skills Reflect on what is being said Ask questions – probe

33. Review of Discussion Questions • Chapters 12 through 16

34. The End