My first exposure to KevinMD.com is reading Healthcare costs can be reduced with emerging business models by Joe Flower.

While I am not informed about the medical business models to which he refers, I am experienced in business. I hail from a family of doctors and hospital owners. While I did lose touch with the industry for several years, I have noted several changes which do not make sense. I can only harken to the experience of my family and my own business in trying to understand the present state of health care.

I will describe the evolution of these hospitals, the beginning influences of health care planning agencies in my home town, and make statements about present policy and reimbursements.

My grandfather founded a psychiatric inpatient hospital outside Cleveland, Ohio in 1932. It was housed in a mansion made available by the Depression. The facility was well appointed for the times and was successful. My father took over in the mid-1940’s and expanded the operation by buying a convalescent home nearby. Eventually, the psychiatric/geriatric hospitals had 200 beds.

In 1954, he entered negotiations with Blue Cross to increase the per diem for Medicare patients. A year later, he succeeded. The per diem doubled from $1/day to $2/day. At that time, a family could afford to house a member from their income. The $ 730 paid for room, board, and medical and recreation costs.

Father graduate summa cum laude form Harvard business school. Running the hospital was a challenge but he responded by keeping costs low and offering good care. The patients and staff loved him.

The other institution founded by family is a bit larger and run more as an institution than a business. Great grandfather and grandfather, on the other side of the family, founded the Cleveland Clinic in 1920. Grandfather was the lawyer who drafted the non-profit status into the charter and by-laws. The hospital paid all staff salaries which contained costs of medical services. The board also directed a high percentage of its revenue to research, a new concept for the time. My father was a resident there. My great uncle began neurosurgery at that institution.

My own experience is creating two start ups, taking over the psychiatric hospital from my father and running businesses for forty years. While I did not follow health care policy and practice for many years, I seem to have lost understanding of how it morphed into the cost behemoth that it has become. I follow my father’s practice of keeping costs low and competitive, of flourishing in competition and providing reasonably priced services and products.

My first experience with the health care planning agencies came from a report of the psychiatric hospital secretary. The emerging agency held meetings at the member hospitals monthly. This particular month, it met at our hospital. The door to the board room was open and the secretary heard a comment that “this hospital” was embarrassing the rest of the group by virtue of low pricing. “And something has to be done about that.”

I have observed some of the changes which occurred under the aegis of  the  health  care  planning  organizations.   The result of the emerging group policy was a plan to merge two hospitals and found a new one, moving to a new facility further from Cleveland. The change was effected in 1979 when our unit closed and the new one opened. I will not compare the level of service of the hospitals, but make the point that the agency made a decision to favor some of its members for the purpose of increasing costs of mental health care in the region. Since then, policies have followed that model, increasing costs on all levels and favoring units which go along with that policy.

There are glaring flaws in the model which provided Medicare higher reimbursement for a lower bed count, if the stated goal is to reduce health care costs. Unfortunately, the system encourages and enforces higher costs by this and other practices. How this policy make sense is beyond my comprehension. If we had a socialistic system and government, it would. But my simple minded approach to business must be forgiven. I believed that competition contains costs, not government mandates.

The agency model works too well for the “partners.” Higher reimbursements serve the insurance industry which operates on percentage of premiums. Higher revenues for hospitals goes fine for that sector. Doctors receiving higher pay will not complain. So, all this progress marches happily along until the patient can not afford the extorted fees for medical services.

Again, forgive the simple minded analysis. As I said, I have lost touch with health care development from the early 1980’s until recently. But possibly, business is too simple a model for health care. Maybe competition has no place in a government bureaucracy. And, apparently, neither does business, which pays all the bills, I am chastened to include.

On the last observation, I wish to include the requirement for certificate of need (CON) I wanted to open a psychiatric inpatient hospital in my home county. After researching state health care regulations, I encountered the CON. The first step was to obtain a permission  from  the local management entity (LME) for the services and the number of beds requested. Sounds reasonable. The LME, or former Department of Health and Human Services (DHHS), denied the need based on projections of demand for psychiatric inpatients in the next four years. This study was limited to the county of the location for the hospital.

Several problems are inherent in this practice. The statistical model of need is limited  to  the county, not the actual market for psychiatric services, which is the state, the region and the country, if the hospital is successful enough.

The LME is a competitor for the services offered. It is the sole dispenser of Medicare/Medicaid dollars in the region, unless a hospital is licensed to receive these reimbursements directly.

The statistical model is not published for analysis as of 2008. I am sure that it would be available if legal avenues were pursued.

Meanwhile, the state of North Carolina has suffered years of bad publicity for mismanagement of its own psychiatric hospitals. All four of them were in the press repeatedly for safety and health care issues. Two have been shut down and refused Medicare reimbursements until investigations were conducted by federal agencies, one being the FBI.

In 2007, patients costs per day were published on the individual hospital websites. By the end of 2008, they were not. The costs ran from $475/day to $ 595/day for federal reimbursement. This cost level was sustained by private insurance reimbursement for inpatient care. The new hospital would have been profitable at that level within the model created in the business plan.

With the Iraqi war veterans returning and Afghanistan war escalating, patients with PTSD issues would have been a growing market. However, the private contractor for the LME said that it would expand its services to include PTSD, and, thus, close that market need.

The state housed and served 13,515 patients with 2389 beds. It failed to provide adequate services with these counts. One hospital was shut down, removing 3750 patients served and 682 beds. It was replaced with a new unit projected to serve 688 patients in 125 beds. New count is 10,453 patients served in 1832 beds, a loss of 557 beds. The patients are released to LME’s for monitoring and care. Many do not take medications and end up in emergency rooms or jails. They are in the general population, but deserve better treatment since they are the chronically ill, not under temporary mental stress.

Meanwhile, the LME would reimburse a hospital for a state referred inpatient with $45/day for services. Other services may increase that amount if properly documented, but that is the base for a private institution paid by the state system for services delivered.

With all these contradictions built into the state system, I ask how can the current model of health care delivery may be sustained. The state and local agencies control the private market, compete with it, and do not reimburse it at the same level as it does its own institutions. I can not find a motel room in this area or anywhere in the state for $45/day, much less pay for meals, staff and psychiatric services.

Besides these problems, collecting is compounded by the several reimbursement requirements and forms. A one doctor office must perform the same application procedures as a hospital with “qualified staff.” A single payer would be a vast improvement.

Now, would someone please explain the logic of the health care planning agency given these conditions? How does it serve the public and the patient? How does it allow the private sector to pay for sustenance of the public agencies  with  the government controlling it at every turn?

In a socialistic nation, it may make sense. Taxes must come from some source to pay for that necessity or luxury, in our case. A once vibrant part of our economy has been taken over and is now thwarted by the governance of the monies it creates.

If the private sector must bend to policies which make no sense for the public or for the patients receiving its services, then reasonable reimbursement for doing so are warranted. If there is no place for the private sector in health care delivery in a government crafted and run system, then a simple statement to that effect would serve all of us harboring the illusion that there is still room for entrepreneurs and businessmen.

Dispense with discussions of tweaking the system that does not work. Forget trying to modify business to fit models which are about to further bankrupt the country. Just explain to this simple old country boy how he can do what he knows how to do and succeed in this system. I’ll be glad to go at it one more time for God and country, not to mention for the exploding number of chronically ill wandering the streets with no care who find themselves in ER’s or jails. I just will not do it for free.

Tom Glendinning is a former hospital president.

 

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