The Future of the Hospital System

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altIn part one of a series, emergency medicine elder statesmen Ricardo Martinez and Lynn Massingale sit down for a discussion on the changing role of hospitals and the future of Accountable Care Organizations.



In part one of a series, emergency medicine elder statesmen Ricardo Martinez and Lynn Massingale sit down for a discussion on the changing role of hospitals and the future of Accountable Care Organizations.

Ricardo Martinez: What is the vision of where we see hospitals going in the future? How does that affect emergency medicine and what roles should emergency medicine play?

Lynn Massingale: Well, I think the short version is that we continue to see hospitals as really central to what’s going to happen in the future for a couple of reasons. One, they have capital to deploy. Two, they have a lot at stake in terms of hard and soft assets. And they have a proclivity and an ability to try to adapt to whatever is happening. We see them moving out rapidly in most markets to do things such as physician employment and looking at ACOs and other ways of taking risk. So big picture: We don’t foresee the death of the hospital any time soon. And we also think they will probably be more assertive in trying to shape what’s happening in their local markets.


Martinez: I agree that the hospitals aren’t going away. But certainly their role is going to change. In order to look forward we’ve got to look back a little bit. Hospitals weren’t always what they are now. They’ve evolved in response to society’s needs. If you go back to around the turn of the century, most people got their care at home; and that was state-of-art healthcare. Hospitals were really set up for people who didn’t have a home. So you’d see maritime hospitals, hospitals that were started by religious or social orders, so that they would have a place for someone to rest if they were sick.

Over time, with the growth of technology, a lot of doctors began to set up hospitals so that they could apply these technologies. So the real question is: If we started hospitals to apply technology, but more and more the technology is able to be given in an out-patient setting or at home, where does the hospital find its sweet spot?

Massingale: I don’t disagree with any of that. I think the hospitals are increasingly doing the higher end, more complicated things. And things that cannot be pushed into the home, such as dialysis. I think the dilemma is the payment mechanism. No one is being paid very well for managing those patients at home. The whole concept of at-home care has a lot of appeal; but so far not a whole lot of money is behind that. The home care industry – which I personally think gets somewhat unfairly maligned, gets undervalued. Reimbursement for home care services is actually, on a per account basis, slated to go down, not up.

So while I think that what you said is the way it should be, I don’t know that the system, the federal government and other payers, has yet really put its money where its mouth is to make it financially viable for more things to happen at home.


Martinez: I’m a big believer in the idea that form follows finance. And in my experience at Stanford we started by having a fee-for-service environment, which converted to what would be now considered bundling where it’s a kind of partial risk. Then we ended up being in a total capitated environment. Now it’s really not about the revenue you’re adding (under a FFS plan) because they’re not reimbursing. It’s about: “How much money can I save from the money they gave me?”

It’s very interesting to watch hospitals and physicians change their behavior dramatically when the money is coming out of their pockets. Utilization used to mean revenue. Now, we’re moving toward a time when utilization means cost.

The problem is that it’s very payer dependent and you have to deal with multiple scenarios at one time. So while we would like a clear pathway forward, there will be a struggle to maintain financial viability while there are changing reimbursement schemes.

Massingale: I think that’s right. While there are certainly some pressures on resource consumption for different groups, we really haven’t had the kind of heat that one might have expected from hospitals based on the differential payment of either a Medicaid patient or a Medicare patient (based on DRG’s) versus a commercially-insured patient (based on charges).

But we are perhaps approaching a time where you have in one institution a very clear set of patients for whom it’s all about cost, and another set of patients for which there’s still the old fee-for-service system. And tests and admissions equal revenue.

I had a not-for-profit system CEO tell me recently that if ACOs really took root and really became the dominant source of his payment, “Everything I own today that’s a profit center becomes a cost center.” But he said, “I know how to manage if that happens. At least I have an idea of what to do if that happens. But I don’t know what to do when it’s half-and-half.”

Martinez: I think that the unifying issue will be being able to decrease cost. Because whether you’re getting paid fee-for-service or whether you’re getting paid a global fee or capitated fee, your margin’s going to be associated with that cost.

You can try cost shifting, which is probably going to fail, or you’re going to take a real strong look at cost. And when you do, you have four or five basic things that you can do, depending on how you look at it: 1) provider substitution, 2) treatment and diagnostic substitution 3) settings substitutions, and/or 4) process redesign.    

With provider substitution, care by mid-level providers moving to nurses aides, everybody is going to top of their license. And we end up dealing with scope-of-practice laws.

Setting substitution replaces high fixed-cost settings with an out-patient setting, a clinic setting, or even at-home care. But process redesign could include off-loading everything we can to the patient. We tend to not give them the tools they need to be successful. But this will require a sea change in mindset.

Now imagine if we do some or all of the above, we’re not going to treat everybody different based upon how much they have. But it is going to require us to have new capabilities and new competencies to be successful. And, quite frankly, we’ll be more adaptable; we’ll be able to take care of more patients with fewer resources. And so the finances work out.

What I find unfortunate is a lot of people are very intransigent and are not going to change anything until they have to. And that’s not a good game plan.

Massingale: If I were a hospital CEO, what I would worry about is: What day do I flip the switch? Because if we all were perfect tomorrow on taking out costs, how many hospitals would close? A lot I think. A lot.

So I guess my question is, at what point along the continuum of change, when some critical mass percentage of your patients are purely capitated or DRG or something other than fee-based reimbursement, do you say, “Okay, we’ve got to take all the cost out that we can on every patient.” Arguably we ought to do that today.

But if we did, what would that do to hospital revenues? Could they shrink enough on their side to survive. I suspect they could not. So, it seems to me there’s a place for all of us at the table. The emergency physician and the hospitalist are all at a pretty good place to try to help the hospitals transition from where they are today to that future state.

I don’t doubt that the future state will be what you just said. I just don’t know how quickly it’s going to happen.

Martinez:  It happens sometimes faster than you think. And it’s funny. People worry about the government. But in my experience it was one of the managed care organizations. Can you go out and get drunk one night and the next day send a memo saying: “This is how we’re going to pay you”? They don’t have to go through an approval process. They don’t have to go through public hearings. They don’t have to do anything.

I’ve actually been through that experience where they wake up and say: “You know, we decided that we’re tired of having all the risk. And we want someone to share the risk with us.” Well, the danger there is that with that risk goes the patients. And so if your competitor signs on to take the risk and you don’t, you end up losing a huge amount of market share.

I’ve been in organizations that were brand names, where hospitals decided that they would take a pass on the managed care organization’s offer to risk share. And then they suddenly found themselves surrounded by patients who didn’t belong to them any more, but belonged to another hospital because they signed the [MCO’s] contract. So it’s very interesting. It happens very quick.

Massingale: To that point, if you look at the commercial ACOs that are out there at, in my opinion, smart institutions like Norton Healthcare Systems or Carilion Clinic, those people can get in a room and reach an agreement. Just for the record, TeamHealth doesn’t work at the Norton Healthcare System or Carilion Clinic.

So this is not a TeamHealth commercial. And I don’t know too much about their commercial ACOs. But I know they’ve got them. And I doubt they have to go through fourteen committee hearings. They just say: “Okay, we agree. Sign here.” So I think those commercial ACOs may be the ones that drive the pace of change much more rapidly. I couldn’t agree more with what you just said.

Martinez: Yeah, it’s amazing how fast it can happen.  And truly, those were the days when you said: “Did you get the memo?

Read part II next month, in the February issue of EPM. 

Ricardo Martinez is Assistant Professor of Emergency Medicine at Emory University

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