As published in the June 1, 2009 Toledo Business Journal
(Seated L to R) Dr. Lloyd Jacobs, president, University of Toledo (UT); Barbara Steele, regional president, ProMedica Health System; Scott Fry, president and CEO, The Hospital Council of Northwest Ohio (HCNO); Dan Wakeman, president and CEO, St. Luke’s Hospital; and Richard Evens, president and CEO, St. Anne Mercy Hospital
Healthcare issues need leadership resolve
The Rotary Club of Toledo, located downtown, hosted a healthcare forum with panelists from major area healthcare systems. Issues facing the healthcare industry and impacting communities throughout the region were addressed.
Panelists included Richard Evens, president and CEO, St. Anne Mercy Hospital; Dr. Lloyd Jacobs, president, University of Toledo (UT); Barbara Steele, regional president, ProMedica Health System; and Dan Wakeman, president and CEO, St. Luke’s Hospital.
Scott Fry, president and CEO, The Hospital Council of Northwest Ohio (HCNO), moderated the forum.
Scott Fry: What are the reasons for high healthcare costs, and what solutions do you have for bringing these costs more in line with those of other Midwestern cities of comparable size?
Dan Wakeman: Cost is a function of two things: price and volume. When we think about the price of healthcare, one of the amazing things folks don’t realize is that 60% of our revenues – our services purchased – are purchased by one entity: the Federal government. That’s called Medicare.
About another 5-10% are purchased by another entity, a combination of the Federal government and the State government. That’s called Medicaid. And what’s left over is what’s bought by the commercial insurance groups, the commercial plan carriers, and people who pay for their own healthcare.
So, if you figure that 60% of our revenue stream is coming from one payer, how much leverage does that one payer have on you? Thinking about you and your businesses out there, if you have one customer that represented 60% of your flow of money, that is big leverage. So much so that we have to file a cost report every year.
What’s a cost report? We literally outline all of the costs of the organization every year and send that in to the Federal government. And in the methodology of the cost report, it actually steps down the information to where you can calculate the cost of each service – the cost of a bypass surgery, the cost of a total hip or a total knee, the cost of a chest x-ray.
And because the Federal government collects all the information, it is public. You can actually go out and get that information, the cost of healthcare.
So, when that cost is out there, what do you think the major insurance companies do when they show up at our door? So, if Anthem or Paramount or FrontPath or Medical Mutual show up at our door – and they know that cost information is available to the public – where do you think our negotiations start? I say cost-plus, and they say cost minus. And we wrestle from there.
So, in reality, that cost report sets the price by the Federal government. The Federal government is not going to allow hospitals or healthcare providers to make much of a margin. And they’re going to set the rates low enough that we’re going to have to be very efficient at what we do.
And on top of that, the commercial payers do the same when they come in. They know your cost. How many of you out in the business world would like to have all your competitors and all the people you do business with know what your cost is? You wouldn’t.
For that last 10% of people that show up at the door, bless their souls. Those are the ones that we get nailed for [having] outrageous pricing – the $5 aspirin. Because that’s what we do. To make up for the losses and the thin margins on everything else, we price the services accordingly for those few small payers, plans, and individuals, which is really tragic. And that’s how we try to make up those razor thin margins.
So, when you think about the whole cost of healthcare, the first issue is price. The second one is volume.
Let’s change hats here now. I’m a consumer now, a patient, and somebody just handed me a card that says that I can buy whatever I want in the healthcare system. All I have to do is put down 20% and either the Federal government or the company is going to pay the rest, and I can buy whatever service I want. And, in fact, that 20% I put down is capped. I might not have to put out more than $2,000 or $3,000 a year out of my 20%, because the company or the government is going to pick up the rest.
Now, let’s say I’m buying automobiles with that card instead of healthcare. What type of car would I buy? If I had a card that just said my company or the government is going to pay for 80% or more, am I going to go shopping for a Dodge Caliber or a Chevy Metro? Or am I buying a Navigator or an Escalade? Think about that common sense, folks.
Volume. Volume is driven by somebody else paying the bill with no limitations on it. So what happens is that people go out and always insist upon the Escalade or the Navigator. They don’t want the Metro or the Caliber.
But the issue is, if there’s no rate-limiting factor on volume and somebody else is paying the bill, then you’re going to buy a lot of it. So, now you have a situation where the government or the employer is paying for a big part of the bill, and people are going to want the higher end services.
If you want to know where we make our money in healthcare, look at our commercials – orthopedics, heart, and cancer… You don’t hear us saying, “bring your unemployed individuals – who have no insurance – to my psych units or to my emergency rooms.” No, we don’t advertise those things. We advertise what is going to make our margin.
So, what happens is that we offer Navigators or Escalades, and not too many of those want to offer the lower end services. And they are all over town, especially in Toledo; every corner has those Navigators and Escalades on them. We’re all selling them. And somebody else is paying for them, usually the employers and the government.
So, if there’s no limitation on that volume and the pricing is being set by a third party, it’s going to be a runaway freight train for cost, and that’s what we see. It doesn’t behave like a regular market.
First of all, I would like to see the government and employers put more of that money into the employees’ pockets and let them make a value decision. Because, when that money is in their pocket – instead of the pocket of a third party – individuals become shoppers for value really quick. You’ll see that they’ll buy a couple of those Calibers and Metros because that will get them from place to place, especially if they can keep the difference.
Second of all, I think the certificate of need system should be brought back. Now, that needs to be a fair process and it needs to be an unbiased process; I know there’s a lot of difference of opinion on it, but when I came from Michigan, we had certificate of need in place – and still have it and have changed it many times – and it has been very successful. And it has kept the cost of healthcare down comparatively to northwest Ohio.
And lastly, with the contracting market right now, and a very difficult economy, I think it’s the time for us, as healthcare providers in this community, to sit down and figure out a way to combine our services to build those Navigators and those Escalades together. Share the expense, share the revenue, and share the responsibility and create centers of excellence together. So we no longer try to compete down every corner.
Lloyd Jacobs: Everyone in this room needs to know that the northwest Ohio and Toledo and Lucas County [area] is one of the most expensive places in the country – among the cities of our size – for healthcare. This is a real problem, a real issue here in northwest Ohio and Toledo. So, this is not an abstraction, this is a real, today issue. It is not yet impacting or competing with food and shelter. And, frankly, there’s a long way before that should happen.
Well, the real issue is that healthcare costs compete with other economic development. We are not an attractive economic development site. So, others pull jobs out of the area because healthcare costs are high. That’s the competition between other economic development and healthcare.
Dan made a couple of points, and I’ll try to summarize them; I agree with most of them. First of all, in normal business, competition drives prices down. It’s counterintuitive, but it does not happen in healthcare. Competition frequently drives prices up instead of driving prices down. One solution that has been suggested is certificate of need laws.
Second, healthcare costs go up when wellness is not stretched. Healthcare costs go up when there are disparities in healthcare access in society. So, when we have people in our city whose access to healthcare is disparate and less than the access that most of the people in this room enjoy, that drives the cost up for all of us.
Higher quality does not cost more; higher quality costs less. So, the appropriate emphasis on quality will help reduce costs.
Finally, the solution that I believe to be almost inevitable will be seen in the next couple of years I suspect. Like it or not – whatever your politics, history, or leanings – we are almost certainly going to have a single payer system in this country in the next two or three years. Exactly what form that will take – how Canadian or British it will look, how much it will involve the current free market insurance world – I don’t know, I can’t predict. But we will almost certainly have a single payer system in the next two, three, or four years. And I think that we had better get prepared for that.
I believe that if it is properly formulated, properly constructed, it will in fact drive healthcare costs down.
Richard Evens: Clearly, healthcare costs are a problem, and we need to address them. But, for most of you, healthcare grew up as a cottage industry. Despite the fact that there are large healthcare systems and hospitals in Toledo today, it doesn’t [change] the fact that, culturally, we came from that model. And the consequence is that healthcare systems are slow to adopt those kinds of cost practices, which have been used significantly in other industries for some time. And what I’m talking about are things like practices of Lean and Six Sigma, which have driven waste out of systems for some time. Just in the last few years have hospitals and healthcare systems adopted those kinds of practices.
Barbara Steele: When you look at the health status of folks in northwest Ohio, you see a lot of obesity, a lot of diabetes, a lot of chronic illness. Oftentimes untreated for whatever reason. And, more and more focus needs to be put on keeping people well, making sure screenings are done. I mean, people don’t get colonoscopies and they end up with late stage cancer.
So, there are a lot of things in the wellness arena that we need to focus our attention on.
Scott Fry: Duplication of services: What are the advantages and disadvantages of a community having ample healthcare resources? To what extent have hospitals and health systems been able to cooperate on these and other services?
Barbara Steele: We in northwest Ohio, Toledo, Lucas County, etc. are extraordinarily blessed to have the healthcare systems that we have in place today. I mean, the quality of care between Mercy, St. Luke’s, and the University of Toledo is certainly to be admired. I’m very proud to live in this city and have access to that.
When I think of duplication of services, I really think in terms of access, convenience, service, and quality. Yes, we do have more than one MRI machine in the city of Toledo. We do have several mammography machines throughout the system. But, we also have people that need those services and that need to come in.
In fact, I heard an interesting fact… In Japan, which is a socialized medicine country, the MRIs per capita is higher there than anywhere else in the world. And what happens is, if people have a bad back, they go in, they get an MRI, and they figure out if they have a bad back or not.
My point is, when you look at access, people don’t want to drive all over the state of Ohio for certain services. They want to have it convenient, they want to have it quick. Now, are there downsides to that? Yes, maybe you have one more MRI than you need in a particular community.
And the duplication doesn’t come just from health systems. There are many for-profit companies that are coming into communities like ours to set up services with the same thing. Trying to do better throughput, trying to make some money, and also trying to improve the service. And some of them do a very good job of it, I will tell you.
Richard Evens: When we talk about duplication of services, the implicit message is that there’s excess capacity in the system that’s a byproduct of those duplication services. The approach that I would suggest for hospitals and health systems really revolves around looking internally first. Looking inward and determining based on the strategy of that particular organization, what can we do effectively to address excess capacity?
And let me give some examples within the Mercy system. Mercy Health Partners, in the course of the last decade plus, has taken out of the healthcare system in northwest Ohio two entire hospitals: Parkview and Mercy. In my own hospital, St. Anne Mercy Hospital, is a downsized replacement of the old Riverside Hospital.
The byproduct of those three decisions was to take excess capacity, or 700 inpatient beds, out of the system in northwest Ohio. In addition to that, Mercy has taken a careful look at all seven hospitals in northwest Ohio and determined that, within those hospitals, there really only needs to be one comprehensive cardiac program, which is the Heart Pavilion at St. Vincent.
Going with Barbara’s point, we have to be very strategic in looking at where we place services. And, if access is an important element of that decision process, then it may be important to have services in more than one facility. And that really [encouraged] the decision by Mercy Health Partners to establish a cancer center at St. Anne Mercy Hospital and upgrade the cancer center at St. Charles.
Now, even when we get beyond the Mercy system, and look at duplication across facilities, some decisions that wind up being made can be made unilaterally. And I cite another example from my own facility. We made the decision three years ago at St. Anne that there were sufficient providers of obstetrical services within the greater Toledo community and that we no longer needed to provide that service at St. Anne. In fact, we closed obstetrics two years ago in January.
These are just some examples of initiatives that have been taken to reduce that excess capacity.
Lloyd Jacobs: A city this size does not need three level 1 trauma centers. A city of this size does not need four places where open-heart surgery is performed. A city of this size does not need two children’s hospitals. A city of this size does not need two helicopter services. And those things are neither conducive to economies of scale nor to quality. We can skirt these issues and continue to ignore them for a while longer, but we’ve got to come to terms with that.
Now, it’s not just in facilities that this issue prevails… We could have a dramatic impact on those kinds of costly duplication if we were to have a single, shared medical record across the entire city. There have been a couple of attempts to do that. The Obama Administration is likely to put stimulus money out for us to do that, and it will require exactly what’s occurring up here, the spirit of unity and purpose in order for us to do that.
I think that northwest Ohio, Toledo, and Lucas County should be where we pledge to share that kind of bedside clinical information to the advantage of the patients.
Scott Fry: The third topic is graduate medical education: Fewer and fewer medical students are choosing to serve their residencies in northwest Ohio, creating a great likelihood of a future shortage of physicians. What in your estimation is the reason for this trend, and what do you propose to do to increase the retention of graduate students in northwest Ohio?
Lloyd Jacobs: We have many reasons to believe that the healthcare system in this country needs an overhaul… I believe that northwest Ohio has greater need and greater opportunity for improvement than the state of Ohio or the country as a whole.
Here in northwest Ohio, healthcare costs are high and health status in general is low, there’s an outmigration of care that, frankly, is embarrassing. When people get mentally ill, they tend to go to Ann Arbor, Cleveland, or Columbus.
Think if you were a site selector working for a corporation that is looking to expand or relocate, how that would play in your calculation of your presentation to your corporate officers.
In the United States, there are approximately 100 exemplars of a set of institutions that set the bar for quality healthcare. They consist of a medical college, a medical school, and a strong clinical arm that work together more or less seamlessly. It is no mistake that combination sets the quality bar. Students and residents are integrated into the delivery of healthcare in a way that everybody recognizes is positive for the delivery of health quality.
I’ve devoted my career to the belief that the very highest quality of healthcare can be delivered only in [a venue] where teaching and research is an everyday part of daily work. We do not have that in northwest Ohio; we have not accomplished that in the 41 years of the existence of the Medical College of Ohio, now the University of Toledo.
For 41 years, we have aspired to being one of those 100 exemplars, and for 41 years we have fallen short. We have never in those 41 years had an adequately sized or stable clinical arm to join forces in a seamless way with the Medical College of Ohio. We still aspire to that, and I believe that is obtainable in the next couple of years. And I believe and fervently desire to be a member of that group of 100 exemplars of that kind of institution that sets the quality bar for healthcare.
A characteristic of that group of 100 is that they do graduate medical education. They do a lot of it, they do it well; those people in the medical education programs are involved in every aspect of the care not only in the host institution but in institutions in the area. As I said, we have not attained that.
We need to have more graduate medical education slots from the Federal government, and I believe that’s a doable undertaking. I believe the laws will change, although they have been extremely tight and difficult to come by. I believe that we need to dispose of our existing graduate medical education trainees in a more careful and studied way such that their exposure is magnified. I believe that the more we work together – these four sitting up here – the greater we will be in the leverage gain from those graduate medical education resources that we do have.
And overall, building that graduate medical education undertaking is perhaps the single biggest and most important leverage point for quality of care in this area. First of all, our physician workforce is aging. The average radiologist in northwest Ohio is 64 years of age. Secondly, as all of you know, recruitment in northwest Ohio is not easy. Young people like warm weather, and young people like things that we’re occasionally not able to offer.
We have had, for 30 or 40 years in northwest Ohio, a “grow your own” strategy for replacement of the physician workforce. That strategy is not adequately working, because the number of new physicians coming out of our medical school has been decreasing for many years now.
The average medical school retains, in its own area and its own Graduate Medical Education (GME) programs, about 25% to 30% of its graduates. Last year, we retained about 5% or 6% of our own graduates. So far, the “grow it yourself” strategy has not been working.
I’m very pleased and proud to report to you that this year, we have seen a little bit of a turnaround… We’re looking at 10% or 12%; that could signify a turnaround. This is probably the single most important determinate of the future of northwest Ohio, in my opinion.
At the conclusion of the panel discussion, questions and comments were taken from the audience.