Health Care Cost and Access Challenges Persist: Initial Findings from HSC's 2007 Site Visits

Conference Transcript
Oct. 4, 2007

PROCEEDINGS

Paul Ginsburg: I don't have a name tag, but I am Paul Ginsburg.

I'm pleased to say good morning and thank you for getting up early. We figured that we needed to start early to squeeze in what we have to communicate to you before lunch, and I want to, you know, welcome you all to the -- what is it -- the initial findings of the sixth round of HSC site visits, which we conducted between February and June of this year.

In the past, every two, two and a half years, as we finished a round of site visits, we've held a media briefing to release the initial site visit findings, but the media briefings have been so good and so substantive from both the presentations of our researchers and the commentary from representatives of different parts of the health care industry that we thought that let's get a bigger audience, we think there's really something good there, and that was the genesis of this conference. So, you're going to hear from researchers who were involved in the site visits, and then you're going to hear from representatives from the hospital, physician, health plan, employer, and safety net communities who will share their reactions to our findings.

I also want to thank the Robert Wood Johnson Foundation, HSC's principal funder, for making possible the sixth round of the HSC site visits, and we went to Boston; Cleveland; Greenville, South Carolina; Indianapolis; Lansing, Michigan; Little Rock, Arkansas; Miami; Northern New Jersey; Orange County, California; Phoenix; Seattle; and Syracuse, New York, as we always do. These metropolitan areas were selected randomly back in when we began this.

I also want to thank kaisernetwork.org, which is webcasting this conference, and the webcast will be available after p.m. on Friday -- that's tomorrow -- and a transcript of the conference will be available on hschange.org early next week.

Now, the communities that we track intensively vary. But taken as a whole, they are representative of the metropolitan areas of , people and above. And as I said, this is the sixth time we've been to these communities, and what's going on in these health care communities individually and collectively provides a good picture of trends across the country. Note: We don't only go to leading-edge places. We go to average and laggard places, as well, to give you the big picture of what's happening in the health care in the country, and we've seen over the years that some of the leading-edge communities just stop and they're not leaders anymore, and others might be the leaders of some new trend.

We're at the point in our site visit work where we've completed more than interviews with executives of various segments of the health care system in these communities, and we've identified cross-site findings that appear to be the most important, and those findings are summarized in the issue brief that is in your packet that we're releasing today as part of this conference. And as our round of site visits continues, and we conduct additional follow-up interviews, we have concrete plans to publish more publications from this round of site visits. Some of them will be HSC issue briefs, and others will be journal articles, and these will go into more depth on many of the issues that we only get to touch on today because of time constraints. And those who have registered for HSC Alerts -- and it's not too late -- will be the first to know about these additional publications.

Two years ago, HSC researchers identified several troubling trends warning of the growing cost and access problems, including a hospital building boom, intense competition among hospitals and physicians to expand profitable specialty services, growing stress on community safety nets, and few cost control strategies on the part of employers in health plans. For the most part, these trends have continued into , although employers and health plans have stepped up efforts to engage consumers and the hospital building boom appears to have abated somewhat. Nonetheless, already planned expansions of medical surgical capacity, especially in profitable specialties and in affluent suburbs with well-insured populations, continue to come online. Competition among hospitals and between hospitals and physicians for profitable service lines, such as cardiac and orthopedic care, remain intense in most markets, raising concerns about increased use of health care services and rising costs.

The bottom line: Little has changed in local health care markets since to break the cycle of rising costs to climbing health insurance coverage and widening access disparities. Unlike two years ago when employers and health plans focused on increased patient cost sharing to try to curb rising costs, employers and health plans envision a broader consumer-based strategy today where consumers take more responsibility not only for the cost of their care but also for lifestyle choices and treatment decisions, and the heightened emphasis on prevention and wellness activities, along with a growing availability of provider cost and quality information, arguably was the most striking development observed the communities in . But whether the so-called health care consumerism movement can produce results -- "results" meaning improved health and cost savings -- that still remains to be seen.

Continuing high-cost trends are threatening the affordability of health insurance, especially for low and middle-wage workers who work in small firms and their employers, increasing the likelihood that the number of uninsured Americans will continue to increase. And before I turn the conference over to Debra Draper, who HSC's associate director and director of this site visit project, I will introduce and moderate the first panel. I want to make the same point I made two years ago in the press release for the press briefing on this for our initial findings in August , and that is there's no silver bullet out there that's going to alter the trajectory of our health care system, and that trajectory is one of spending more and more for care for fewer and fewer people. Looking forward, policymakers, the public, and industry stakeholders will have to more explicitly address the problems underlying these trends and either revisit solutions that have been discarded, get serious about developing new ones, or accept the ramifications of the continuing status quo.

I'll close by saying that over the past two years, I've only seen continuation of the status quo.

Debra?

Debra Draper: Good morning. Good morning, and I'm very pleased that you all have joined us this morning.

Our first panel this morning will focus on position and hospital trends, and we're very pleased to have such an excellent group of panelists this morning.

We have Dr. Pham who is here with us; Dr. Bob Berenson, Carmela Coyle, and Dr. Don Fisher.

Dr. Pham is a senior health researcher at HSC, where she coordinates the Community Tracking Study Physician Survey. Her research focuses on the organization of care delivery, payment policy, quality performance and improvement, trends in physician and hospital markets, and health disparities. She has a particular interest in the Medicare program and is involved in Medicare quality-of-care program and policy design work with Mathematica Policy Research. Dr. Pham was a Robert Wood Johnson clinical scholar at Johns Hopkins, where she received her M.P.H. She previously worked on health services issues for the Population Council in Vietnam. She practices general internal medicine at a safety net clinic and received her M.D. From Temple University and her bachelor's degree from Harvard.

Dr. Bob Berenson is a -- he's a consulting researcher with HSC and is also a senior fellow at the Urban Institute and an expert on health care policy, particularly Medicare, with experience practicing medicine, serving in senior positions in two presidential administrations, and helping organize and manage a successful preferred provider organization. From to , he was in charge of the Medicare payment policy and managed care contracting at the Health Care Financing Administration, now the Centers for Medicare and Medicaid Services. He served as an assistant director of the domestic policy staff in the Carter Administration. He was also national program director of Improving Malpractice Prevention and Compensation Systems, a grant program funded by the Robert Wood Johnson Foundation, from to . A board-certified internist who practiced for years in a Washington, D.C. group practice, Dr. Berenson is a fellow of the American College of Physicians and a graduate of Mount Sinai School of Medicine.

Carmela Coyle is the senior vice president for policy in the American Hospital Association's Washington, D.C., office. As a member of AHA's executive management team, she is responsible for the development of the AHA policy positions on behalf of the hospital and health system field. She manages AHA's staff team responsible for analysis of legislation and regulation, policy issues, data collection, and trend analysis. Ms. Coyle is also a national media spokesperson for the AHA and represents the organization in various health care and other forums. She has been with the AHA for years, joining the organization after spending six years as an analyst for the Congressional Budget Office in Washington, D.C., and she received her undergraduate degree in economics and Spanish literature from Carleton College and completed the course work toward her doctoral in health policy at the University of Michigan as a fellow of the Pew Charitable Trusts.

Dr. Fisher is the president and CEO of the American Medical Group Association, a trade association that represents medical groups, including some of the nation's largest, most influential integrated health care delivery systems. He has been CEO of the organization since October of , and under his leadership the association has become the premier voice for medical groups in the U.S., with its membership currently responsible for delivering health care to more than million Americans. The association advocates for the multispecialty group practice mode of health care delivery, the patients they service, through innovation and information sharing, benchmarking, and continuously striving to improve patient care.

I'm going to turn it over to Dr. Pham, who's going to pick the panel off.

Hoangmai Pham: Good morning. I actually think it's very apt to start off so early in the day on the provider sector, because it's perfectly in keeping with Paul's theme of evolutionary rather than revolutionary change, and if you think of it as being evolutionary in the sense of mutational and haphazard, that would be a perfect framing for some of our observations. So. Just to give an overview, we're going to spend a little bit of time talking about changing relationships between hospitals and physicians, the push and the pull between different subgroups of physicians and the hospitals in their market, a bridge topic on hospitals that will take us from those issues around relationships to the underlying causes for what we see as an increased tiering of providers on both the hospital side and the medical group side.

So, we've observed this real push and pull growing between hospitals and physicians. Hospitals are definitely making substantial effort to tighten affiliations with select groups of physicians, and they're doing this for a variety of reasons: partly as a defensive move to stave off physician competition for profitable services and partly as a competitive strategy. This is an arms race with other hospitals, essentially to develop specialty service lines. Hospitals are choosing to employ more of certain types of physicians, especially proceduralists, and they still engage with physicians in joint ventures at the same time for both outpatient and inpatient facilities.

So, we'll take each of these drivers in turn. Hospitals' motivations are varied, but we think of them largely as moves to compensate for where the traditional relationships between hospitals and their medical staffs have been changing over the past few years, and the roles that they each play in care delivery have also been changing.

Hospitals are having an increasingly hard time maintaining physicians' allegiances in many markets; and where physicians, particularly specialists, have access to alternative work

settings, such as ambulatory surgical care centers or just in their own clinic offices, they would rather avoid traditional medical staff duties, such as taking emergency room or inpatient call coverage. And of course we've documented before that physicians compete with hospitals in many markets for profitable services.

That trend still continues although perhaps with not as much fervor as we noted two years ago.

So, in terms of growing employment of physicians by hospitals, this clearly serves some hospitals' competitive strategies in terms of expanding specialty service lines, hiring your own neurosurgeons, not having to depend on loyal, community-based neurosurgeons, and compensating for the unwillingness of those loosely affiliated positions to take call or to treat uninsured patients. But hospital employment also seems an increasingly attractive option for some physicians who would just rather not deal with the pressures -- the administrative pressures of private practice.

We heard a lot about the generational differences in lifestyle priorities for established versus younger physicians, and hospitals are taking advantage of that to some extent.

The joint ventures that hospitals are undertaking with physicians are often defensive moves to at least guarantee that they retain some of the pie.

Some hospitals, however, do pause a bit out of concern that they'll cross the line on anti-fraud and abuse laws, so just the overall message that it's not a unanimous sense of enthusiasm for these ventures. And we've noted that in some markets investors have not seen the returns on these types of ventures that they had hoped. We didn't hear about losing ventures that lost money but just sort of dampened enthusiasm. So, to this bridge topic, the growing role of hospitalists, and it's a phenomenon that relates to both the push and pull of hospital physician relationships we just discussed but also to this phenomenon of increasingly tiered provider market that we'll talk about next. Hospital (off mike) is being driven by many, many factors, but among them the strategies of hospitals, on the one hand, to lower length of stay further more, control costs, increase the sense of control that they have over quality improvement activities, and, not least, to have reliability call coverage; and then, on the other hand, the strategies of physicians that would allow primary care physicians and other providers of cognitive services to avoid hospital work and instead have time to bill for a greater number of visits in the outpatient setting and maximize their revenues, as well as for other lifestyle reasons.

We heard about quite a range of different practice arrangements for hospitalists. Some hospitals employ their own or contract through a medical group or national or regional vendors. Some health plans will employ hospitalists, or medical groups, and some hospitalists in some markets are not exclusively affiliated with a single hospital as is the most established model, and they will work in more than one hospital.

Indeed, in many of our sites it's now the norm for most inpatient medical care to be provided by hospitalists, and this has led to much more fractured relationships with community-based primary care physicians and the hospitals that they used to know. Sometimes that's by design, and we can talk about that more later, but in at least one market some health plans, as part of their credentialing criteria, disallow PCPs from following their patients into the hospitals.

And hospitals are clearly expanding their roles beyond just general medical services. They are now obstetric and pediatric and surgical hospitalists.

The hospitalist trend in part we think reflects the increasing leverage that some medical groups and physicians, particularly specialists such as neurosurgeons or EMTs and those physicians in very large groups that are enjoying versus hospitals in many markets, while other physicians, particularly primary care physicians and those in small practices, fall further behind financially. And we observed a similarly increasing disparity between different types of hospitals along dimensions like types of services that they can invest in to provide their payer mix and certainly their negotiating leverage for payments.

So, on the physicians' side, physicians in small and solo practices and those providing cognitive services find it harder and harder to maintain profitable practices. In some markets, such as Boston and Cleveland, large systems are essentially forcing physicians to choose exclusive affiliations. There's no judgment there done, and these pressures have pushed more such physicians to consolidate, to join large systems, because they can at least rely on the better negotiating leverage for private reimbursements.

On the hospital side, the already well- capitalized hospitals are, as Paul reported, following through on their set plans for capacity expansions. They do this in partnerships with hospitals in wealthy suburbs, through branding at satellite campuses, some of which are brand new; investments in specialty lines, whether on their old or their new campus; and expanding affiliations with primary care practices, not necessarily in employment but in tight affiliations in order to increase referrals for not just traditional tertiary care services but cortinary, very high tech services, such as transplants. And those well-capitalized hospitals, to a large extent, are making very heavy investments in health information technology.

In the meantime, on the other side of town, the safety net hospitals in those in poor communities fall further and further behind in terms of both payer mix, obviously their capital, and hence their ability to make those infrastructure investments in HIT.

So, to launch the discussion, I'll just throw out a few obvious implications of these trends, which Paul has already touched upon. Ongoing intense competition between hospitals and physicians for profitable services fuels our concerns about increased use of services and rising costs. The strange relations between hospitals and physicians, especially around on-call coverage, mean either that hospitals will have to continue paying extra for those services and/or that some patients will be at risk for not getting appropriate care. And, finally, the growing gap between provider haves and have nots have implications not just for the providers practicing in those different settings but clearly also for the patient populations who tend to access in these tiered systems.

Debra Draper: Bob, do you have anything to add?

Robert Berenson: Let me do just a few minutes, because I think it will be more informative to hear from Carmela and Don, because Mai and I mostly drink from the same Kool-Aid when we come up with these findings. We're on the team together.

In reviewing sort of this whole topic that we've been working on the last few years, few rounds of what's happening with physician/hospital relations and then looking at what we found this year, I guess my -- the only thing I can have as a generalization is that you can't generalize. There are so many things going on in sort of different directions that are so site specific that it's very challenging to say well what is happening nationally in this area, and I think Mai has laid out a lot of the sort of forces that are in play, but the forces manifest themselves in different ways.

So, how to summarize the following situation: A group of specialists decides to start a specialty hospital as a direct challenge to hospital A and hospital B, and they're doing it for various reasons -- for more control, to centralize their care, to be entrepreneurs. A lot of reasons. So, they're now an economic challenge in the community, so what happens back at hospital A? They've got a void of cardiologists. They find a cardiology group that had been mostly working at hospital B. They make an attractive offer to the cardiologist to come to hospital A and do some joint leasing arrangements, and the cardiology group is now happy that used to be at hospital B is now mostly at hospital A in a nice relationship with that hospital. The previous cardiology group is off and now hospital B is filling in their hole and they may go and hire some cardiologists from somewhere else. What's the score card? Is this tighter hospital/physician relationship's fractured hospital/physician relationships? I don't know you summarize it, but this is the kind of stuff that is going on.

I guess the final point to make is it's not directly about improving quality and efficiency. If you believe the focus factory theory of health care reform, then maybe there's some advantage in having that specialty hospital. I'm a little skeptical. But, in fact, it is about positioning; it's about factors, lifestyle factors, income; it's not largely about what we talk about in Washington.

I'll do just a couple more things. As you know, we typically publish in peer review journals. I see John Iglehart here, and we do a good job of trying to pass peer review and being able to support our conclusions. But occasionally what I enjoy about going on these site visits -- and this is my third round of doing it -- is the "aha" moments you get in a conversation with a senior executive of an organization, sort of the inside about a certain issue, and I'll just share with you two "aha" moments that I had from this round, and I -- you know, I went to two sites this time. I've not been to most of them, but I don't go to each one each time. We sort of share the load.

One of the "aha" moments came when I was speaking to an executive, an administrator of a multispecialty group -- not one of Don's most famous ones but a real multispecialty group that's been around for many, many years -- and he basically launched in -- I asked him how's the weather, and he launched into what are you people in D.C. drinking? Your fee schedule in Medicare is absurd, and what you're doing to us is making it impossible for us to hire cardiologists, because they want to stay in the fee-for-service sector because they are making so much money, and then he just launched into sort of almost CPT code by CPT code. This is crazy.

Now, some of us, like Paul and others, have been writing -- and I've been involved with this, too -- writing about how distorted prices affect behavior and you need to get the prices right. Well, I think one of the issues around what takes the policy, the enlightened policy, high ground, the goal of really moving towards more integration, more multispecialty group rather than single specialty group, and we're trying to figure out how to do that. I think we're finding it's going the wrong direction, and it's partly going the wrong direction because the payment policies or other policies that you might not think are relevant but are relevant, and so that was an "aha" moment on that one.

The other one had to do with -- I was speaking to a chief medical officer, and we are very interested in this round and trying to figure out what hospitals are doing -- this was the chief medical officer of a hospital -- what hospital systems are doing in response to Medicare's reporting initiatives related to the premier demo and all that related activity into, you know, how the hospitals react to that. Is it a good thing, a bad thing? How do they operationally deal with? So, we asked questions about how the hospital -- what the hospital thinks about those measures, etc., and we got nice responses, and the hospital was responding and doing things, and this particular chief medical officer thought it was positive. So, my next question was what else is going on with quality and safety at the hospital? And he couldn't think of anything in particular.

He mentioned a few things, and I said well, what else is going on sort of generally in the hospital? Well, we put in an electronic ICU. You might be interested in that. Well, anybody -- how many people in the room have heard of what's called an EICU or tele-ICU? At least a few. And we then had a long discussion about it. It's basically -- it's a technology -- and I'm not endorsing it, I'm just saying it's out there and some hospitals are doing it -- that has intensivists and intensive care trained nurses in a distant site with direct access -- visual access to patients, access to all real-time, moment-to-moment physiologic information around blood pressure and EKGs and all that stuff and is monitoring the patient, and it has a potential for significantly changing the way intensive care is provided in hospitals, and about , percent of patients are in intensive care. Certainly the costs are there. And he actually thought it was saving a lot of lives. He thought it might be reducing costs, but they had -- those are tricky studies to do. But the point I am making is that it's probably a much more significant -- maybe not more significant, but it's at least equally significant in the area of quality and safety, but we in the policy world have said quality and safety is about these heart attack measures and congestive heart failure measures, and so we sort of set of the agenda in ways -- now, happily there are things going on that we don't know about, but it just -- I'm using it as sort of an example of the need to not be so focused on what we're doing in Washington that we don't know what's going -- it really supports the reason, I think, that HSC is out there documenting this stuff. We would hope -- we are planning to do a special study for this round on this phenomenon of electronic ICUs and see what we can learn about this. Why do some hospitals do it? Why do some hospitals not do it? Does it really have impacts, etc.?

So, with that let me endorse everything Mai said. I've introduced a couple of "aha" moments, and let's go to whoever you want to go to next.

Debra Draper: Thank you. Carmela?

Carmela Coyle: Thank you. I have the pleasure and the opportunity to work with hospital leaders, trustees, and physician leaders across the country every day, so I get a daily dose of "aha" moments, and I mention that as a background, because I wanted to start by thanking Paul and the team and the Center for Studying Health System Change. I mentioned to Paul earlier this morning, the work of the Center I believe is spot on, and I think their work is critical to everybody in this room, to anybody who has an interest in public policy, and, quite frankly, to all of us as consumers and patients. So, I want to say thank you for your ongoing work, and we're very supportive of it.

And similarly, the implications that Dr. Pham laid out earlier are also spot on. Just a couple of observations.

Obviously as a nation we face great challenges. I strongly agree with Paul, and I'm going to guess with many of the panelists here, that change is needed in this country, change is needed in our health care system. Take a look at the rising numbers of uninsured individuals. It's just one symptom, and in fact a pretty sad system, of a health care system that's really in need of significant reform. The issue of affordability -- you all know that half of Americans are dissatisfied with their health care costs. It's the number one concern on people's minds. But throw on top of that the aging of the population, what's going on in chronic disease and chronic care trends. We've got a serious problem -- the doubling of obesity. I'd like to say give us another couple of years and we'll double diabetes as well, all of this leading to really significant concerns for those of us who are on the front lines of providing health care everyday. Of course, it's also a driver of increased demand for services, increased volume of services, and that leads to increased spending. So, all of this is going to be a challenge, I think, as we move ahead.

A number of things were highlighted, I think, in this morning's research results. On the positive side, this whole issue of involving consumers in their care, you hear a lot about wellness and prevention. It is happening. My own view is it's still happening in a fairly disjointed way, insurers focusing on wellness and prevention, employers sometimes separately focusing on wellness and prevention, hospital organizations and communities focusing on wellness and prevention. I think we have a real opportunity to bring those efforts together and to make some steps forward. But we've seen significant progress. Similarly in the area of transparency -- and I think Paul in his opening remarks talked about how striking the change was in terms of information available to consumers on quality and on pricing. Perhaps we can come back and talk a little bit more about that.

Significant strides in the area of quality reporting. We have been integrally involved and were one of the founders of the Hospital Quality Alliance, which was an effort to share quality measurement information with the public. I'd agree with Bob Berenson. What we hear coming from the hospital field are concerns not about the collecting and reporting the sharing of this information, but this nagging issue of are we measuring the right things and are these incentives ultimately leading us to do the right things in the area of quality and in the overall area of performance improvement.

The second on the plus side. We heard a lot about chronic care management, and I think that has been a very important trend. From our perspective, we need much more of it. And, in fact, if you think about some of the chronic care management, the disease management trends, if there is a concern that I have it's that many of those efforts are thin. They're really just a layer over and a patching together of problems that we've got in care delivery. What we really need in terms of change is a redesign around chronic care management at its core; the involvement of primary care physicians; seamless continuum of care -- words that many of us have used for many years. How do we really coordinate care on behalf of the patient, not just as a layering on the top, but really from the beginning of their care delivery experience.

Now, the research today I think also highlights three important challenges. The first that have been mentioned are physician hospital relationships. I agree with the findings, and that is those relationships are very strained. It is driven by many factors. The increased competition instead of collaboration that we see is often driven by a few, and one of the things I would like to underscore is that in many hospital organizations in many communities, the relationships on the part of the majority of physicians in hospitals are quite strong, but it is the economic challenges faced by a few, often the specialists, that have led to a fracturing of that relationship so that even though it involves a few physicians it can be devastating in terms of the overall relationship and devastating in terms of the finances for that organization. Bob and Dr. Pham and Paul have mentioned some of those. The physician movement to ownership and development of their own facilities has a number of negative consequences. First, and the most obvious, the conflict of interest potential that it presents; second, the extraordinary increase in utilization that we've seen. If you've looked at the data, as an example, in Oklahoma City on spine surgeries, I really doubt that people in Oklahoma City need that many more spine surgeries than anybody else in the United States.

Concerns about eroding the ability of full-service community hospitals to cross subsidize all of the other services they provide -- burn, EICU, (off mike) -- those sorts of things are very important -- and the important issue of on-call coverage and the challenges that it presents.

Last trend highlighted in the research. I'd like to underscore is health plan consolidation. It is something that is going on. It is frustrating in many communities, and some of the largest health plans are those at the moment who are enjoying some of the highest profits, another area we may want to come back and talk about in more detail.

Let me just close by saying I think Paul may have mentioned one of the most important aspects of all of this -- that we will not get serious change unless people are in fact willing to look at new solutions, and it's a place where the hospital field is working to make a contribution. We have been working under the leadership of the Board of the American Hospital Association on a series of proposals and a framework for healthcare reform in this country, something we're calling health for life -- five essential elements of reform, including a focus on wellness and most efficient, affordable care; the highest quality care; the best information; and coverage for all that's paid for by all. A lot more information and actions that we could take in the public policy environment to make these happen. We think it's time to get serious about needed change, and we are ready as well to talk So, with that I thank you.

Debra Draper: Great. Thank you. Don.

Donald Fisher: Well, thank you, Debra, and I'd like to thank Paul and his team for inviting us here to participate on this panel, as well as to commend you for the outstanding work that the Center continues to do. I've just spent the last week and a half, two weeks doing an environmental scan myself for our strategic plan for the Association, and I wish I had waited because I could have just used Paul and his report instead. In any event, I think -- you know, I like to look for solutions, and when I look at the two-year-ago report and now the report today, Paul's right, and Mai was right also -- there's been very little change that's taken place across the United States, and I bet if we were to roll this out to three or four more years into the future you're going to see little change as well.

We're coming upon on a crisis where we've got the baby boomers moving toward Medicare; we've got physician population on average years and above in age looking to retirement -- many of them are retiring early because of the strains and pressures on their practice. We're looking at a crisis and nothing seems to be being done. So, my solution when I look at this is to look at what's the underlying cause. Why physicians compete across specialties? Why do physicians and hospitals compete for services and try to do them themselves as opposed to coordinating it together for the benefit of the patient. And it's all because of the way we're paid. It's just that simple. And if you look at the way we pay physicians today, it's based on throughput.

The more you do, the more you get paid. Said differently, the worst quality care in this country gets paid the most. If you're a physician out there that doesn't get it right the first time with a diagnosis, you can bring that patient back again and again and again until you finally get it right, order all the tests you want -- and, by the way, every time you do that you get paid. The high quality providers that get it right the first time and coordinate this care so patients don't have admissions to the hospital that are unnecessary don't get paid as much, and so we've got a dichotomy here in which we've got a payment systems that is so perverse that it's forcing providers to compete with one another across incomes and not really competing on the best quality of care they can provide the patients.

You know, we've got -- many of my members are own-and-operate hospitals. In fact, Carmela and I have a board member in common -- Nick Walter from the Billings Clinic, which is interesting. But, you know, these institutions are trying very hard to drive up quality, and if you've got a hospital physician organization -- like a Mayo, like a Cleveland, like an Austin, like a Henry Ford -- every quality improvement you make on the ambulatory side that reduces the hospital admissions and readmissions because you've improved the quality causes a loss of revenue to that institution, to that hospital -- large losses of revenue. And so at the end of the day for every quality improvement that you make and for every efficiency improvement you make, at the end of the day you get less revenue.

And I've got many examples of this where we get some of our members that have instituted lean production and quality improvement mechanisms only to find at the end of the day they were going broke, and they had to actually go in and negotiate with the payers to have a gain-sharing mechanism with the insurer and with the hospital so that for every dollar saved there were some dollars that came back into the provider community so they could continue to do the improvement, continue to it in production.

So, we've got to really focus on the root causes, and the root cause is the reimbursement system.

Now, this is something that would take probably a decade to get change, but it's got to be changed. One of the first steps I think we could take is to begin to reimburse for care coordination. If you look at the data, over percent of their beneficiaries in the Medicare pool have three or more co-morbid conditions. Most care in this country is episodic. When the patient comes in for their diabetic problem, they're looked at by that physician for their diabetic care. They're not really paying attention to their cardiovascular or congestive heart failure problem. In many instances, the physician that's taking care of that patient doesn't even know what medications the person's on unless they bring their bag and dump it out and they do an inventory. What we have is a situation where we've got episodic care where there's no care coordination, so there's a redundancy in tests and patients oftentimes go south pretty quickly because no one's paying attention to their underlying diseases that are co-morbid to their primary condition they presented with.

So, what we really need to do is to begin to pay for care coordination -- real care coordination. Now, some people are referring to this as the medical home or the advance medical home. True care coordination requires an interdisciplinary team of providers. It can't be a single specialty, because you can't coordinate within that single specialty. It's got to be multispecialty. You've got to have a uniform, interoperable electronic medical record that not only covers all those providers but reaches out into the community of referring physicians, as well, so you've got that connection out at the beginning, as Carmela said, at the beginning of the disease condition so it doesn't get lost.

You've got to have home monitoring devices; you've got to have care coordinators or nurse coordinators that actually do the work; you've got to build registries; you've got to do demand management. You've got to do all these things in concert so that you can really truly coordinate that care. And now we will need to pay for that, and if you paid around disease conditions, a bundled payment around patients who have these morbid conditions, for true care coordination a couple of thing would happen.

First of all, we'd see the coming together of hospitals and physicians across this country like we've never seen before, because it would be a bundled payment paid to the institution -- not to the providers -- that then would be distributed locally based on the results that they're getting for that care. You'd see all of a sudden the desire of physicians to come together across specialties, because it takes that to care for patients who have more than one multiple conditions that they're presenting with. So, all of a sudden we'd see the disaggregated physicians across the country beginning to see hey, there's a way we can come together, provide higher quality care, make more money, and provide a better patient-centric situation. So, I think you've got to look at the reimbursement system, I think we have to pay for care coordination, and all of that will drive the integration and really get us away from this problem we're facing right now where we look out two years and go two more years and nothing's really changed, and it's never going to change in my mind until we change the reimbursement, we provide the right kind of incentives and get rid of the perverse incentives.

So, I'll stop there.

Debra Draper: Okay. Any other reactions from any of the panelists?

Hoangmai Pham: Here -- just an illustrative case on some of the points that Don made, actually from one of your famous members, but a very influential, large multispecialty group that is coming up on a new round of payment negotiations, and they're taking a bifurcated tactic that I think both illustrates the underlying problems Don is talking about but also maybe touches upon the limits of what even reformed payment can accomplish. So, on the one hand, they've chosen to use their stellar performance on standardized quality metrics to ask for higher reimbursements beyond the bonuses, and as a large group and a gorilla in that market they have more than enough leverage to do that despite health plan consolidation there.

On the other hand, they've made the conscious decision to also as, that private pairs meet target incomes for their PCPs. So, they're willing to come down on the proceduralist incomes, but they want to set a target income their PCPs that they actuarially determined to the incomes that are similarly experienced professionals in other professions in the market, such as law. It's I think a novel strategy. It certainly speaks to the disparities and how different services are varied within the fee schedule, but it was an interesting set of strategies to walk into negotiations with.

Carmela Coyle: I was going to say I agree with Don in terms of payment as a driver. It is the incentive. Some people follow those incentives. I'd add one more, perhaps, to Don's list. Absolutely agree that the explicit funding of care, coordination, chronic management is essential. Agree that we need to look at package pricing.

The other thing we need to, I think, learn much more about but very seriously consider as we explore it is the issue of rewarding excellence, the so-called pay for performance. What we know about that is very little at the moment. We're about to complete a synthesis of the research. and others have been looking at this as well, and we haven't done a good job analyzing what works and what doesn't and what it is about the various pay for performance mechanisms that may drive a result or not. Much more work to be done there but something else we think should be explored.

Donald Fisher: If I could comment on that pay for performance, Carmela. There are some real concerns about the P-for- P programs that are out there crossing the country today, and there's hundreds of them if you look across the United States, and the first question is at what level do you measure and what are we measuring? And I have a real problem with the fact that we have decided as a country we're going to create as many measures as we can possibly crank out over a period of time for every specialty and subspecialty of medicine when we really ought to be focusing on the high-cost, high- volume procedures first till we get it right and know how to use the data to reengineering clinical processes to get better patient outcomes. We've not doing that.

Instead, what we're doing is covering the whole country and all the specialties with every measure you can possibly come up with that really aren't going to make a long-term difference.

The second is at what level do you measure, and most of the P-for-P programs out there unfortunately are directing their measure at the individual provider level. This does nothing more than -- it continues to put pressure on this fragmentation, and it continues to drive physicians apart rather than bringing them together. What we need to do is measure at the team level or at the group level where you have a couple of things happening. You have the -- with individual physicians, you've got the issue of small numbers. Any one physician who has two or three or bad diabetic patients is going to look pretty bad on the score card.

What would you do if you were that individual physician out on the marketplace with those bad patients? You jettison them off, because at the end of the day you can't get them to comply, you can't get them to reform and take care of themselves. So, you get them out of your panel and all of a sudden your scores jump up, so you look pretty good. So, the concern is you've got the issue of small numbers, and you got physician behavior out there where you'd have patient dumping of the sickest patients who need most the care are not going to be able to get in because you're getting scored individually.

You also destroy the idea of team building. I mean, after all, if we're being measured against each other independently, what is the incentive for us to come together as a team to really, truly coordinate this care. So, I'd just, you know, caution everybody that as you're developing the P-for-P programs, we need to focus on the high-cost, high-volume procedures, and you need to measure at the team or group level, not at the individual level.

Robert Berenson: If I could just make a brief comment, I first wanted to generally endorse what Don just said about P for P, but what I wanted to comment on had to do with chronic care management, chronic care coordination, and the role of hospitals in that, which I think hasn't gotten nearly enough attention, and it's another "aha" moment I had, this time not with HSC but based on some case studies I was doing about, in fact, multispecialty groups' commitment to doing chronic care coordination and found that in some situations the hospital, despite this sort of negative return on investment were in fact engaged in helping fund the chronic care coordination nurses, the infrastructure, etc., and I said well, why wouldn't you do that, and the chief medical officer of the medical group said because Medicare doesn't pay for readmission within days for congestive heart failure. And I used to be in charge of that and said they don't? In fact, I remembered in fact responding to an OIG report in saying we shouldn't but we do.

So, I'm scratching my head. I'm calling -- I was no longer at CMS. I called the head person in the hospital and he said yeah, we do reimburse within the next day. The same day we would provide a new DRG payment. Well, it turns out -- I got to the bottom of it -- there was an aggressive intermediary for that region that was doing medical review on claims, and the way that got translated to the senior executives at the hospital was that you'd better be careful about readmissions; in fact, they forgot to be careful. Don't have any CHF readmissions, let's invest in a program to keep people at home. MEDPAC has a chapter in its last report about readmission policy. I think it deserves a lot of attention in terms of trying to change the business case that hospitals have, particularly around ambulatory care, sensitive conditions -- could really change the dynamics. It does go to the point which Don led with, which is that payment policy, whether it should or not, really drives behavior.

And the final point I would make is it's not just payment policy, and in this area of chronic care management, I would refer people to a fabulous article -- essay that Ed Wagner wrote in Milbank in ' about why physicians' education and culture make them not the right people to take the lead on chronic care management. Out of that, he evolved his team concept. There are some real cultural barriers in the physician community in this area. Having said that, there are some physicians who really want to be part of change in this are. So, it's more complicated than payment policy, but payment policy is necessary if not totally sufficient.

Debra Draper: Other comments from the team? Okay, well, we're going to probably open up to questions. In your packets there are question cards. They're green. So, if you have questions that you want to ask, please fill those out and pass them. I guess we'll have people walking around, so pass them to the center and people will collect them.

But I think in the meantime I have a couple of questions for the panel. One thing is what are the implications that exist relative to the employment of physicians on quality of care?

Carmela Coyle: I'll start. I assume you're talking about employment in hospitals. We have seen a trend of greater employment of physicians in hospitals, but it varies quite dramatically across the country. We've got in some market areas percent or more of the physicians now employed by hospitals, and in other market areas really very little at all. So -- but back to Bob's earlier point, it's very difficult to generalize.

But I want to go back to, I guess, both

Bob and Don's comments around aligning incentives. On the one hand, it does make it easier -- that is, everybody is pulling on the same rope in the same direction and you've got that relationship, that economic relationship that we've been talking about that's set and that's in place. But when employment relationships occur, it's usually for only a portion of the organized medical staff, and that's a challenge, because you've still got other folks who may be just privileged or using the hospital infrequently.

One of the things we haven't talked about -- we've talk about payment alignment and how important that is -- how challenging it is to do any of this when we've got payment policy -- in particular, Medicare payment policy -- that is created in silos for physicians and for hospitals. It's just the incentives themselves. It's are the incentives even driving people in the same direction. So, we talked about physician/hospital relationships and the need to align those. The employment model is one model for doing it.

In fact, one of the issues is that there are very few options for aligning physicians and hospitals. You've got employment; you've got joint ventures. And we really don't have anything else. We've been doing a fair amount of work on this notion of clinical integration that Don was talking about. Are there ways that we can change some of the laws and regulations that prohibit the sharing of economic incentives between physicians and hospitals? We have to do some changing to make that happen, but we think it would be important and ultimately improve performance in quality.

Donald Fisher: Comment on that. I don't think it's so much the employment but the compact that is derived from the employment between the physician and the institution they go to work for, whether it's a hospital or large integrated system of care or a multispecialty group. You know, a lot of the not-for- profit multispecialty medical groups that own and operate hospitals have the on-bottom line that they're looking at at the end of the day and the physicians are on a salary with a withhold for quality metrics that the medical group themselves have put into place. So, it's not just being employed, but it's how you structure that employment. You can actually structure it in a way that there is a real incentive for the physicians to get measured and paid based on quality improvements and quality results.

Robert Berenson: Just very briefly, one model of potential sort of promoting collaboration, especially around this chronic care coordination activity. There are a couple of models out there that I think need more sort of review and work with. In North Carolina Medicaid program, the community care networks that Alan Dobson has been developing sort of based on the notion that physicians are in onesies and twosies still, and they're likely to be in a relatively rural state. They're not going to have the infrastructure to do chronic care management themselves. They don't have -- as Wagner would say, there are lots of reasons why they will not redesign their practices. So, they have actually set up in the community an infrastructure to be sort of the care coordination for the community physicians. So, it differs from disease management in that it's not a distant call center three states over; it's in the community, I think, with the hospital playing a significant role.

One of the PGP demos -- physician group practice demos --- that Medicare is working with is actually not a group practice at all; it's a PHO- like organization based at Middlesex Hospital in Connecticut, and, again, that's the organization that is working with a couple hundred community physicians in their onesies and twosies practices to provide -- to sort of do a collaborative care coordination. It seems to me, it's a model where there's some potential collaboration.

One of our set of findings that Mai mentioned and that we spent a lot of time on in the last round was the fact that primary care physicians often don't set foot in the hospital anymore. So, here you have a challenge of how do you do chronic care coordination. We're saying that the hospital has a role. That's where case finding happens. There are often deeper pockets. They've got managerial know-how. But the docs are in the community, and yet those docs aren't walking in the hospital anymore. So, how do you figure out how to get that alignment? I think, by looking at North Carolina and some other places, there might be some models that we could work with.

Carmela Coyle: And there are also -- we'll let people ask questions -- there are also some insurance models out there, obviously in the area of chronic care. The concern is the benefits accrue downstream to the payers, the employers. How do you reallocate that funding upstream to make certain that we've been able to put the money where the costs are actually incurred?

Debra Draper: Okay, we're going to -- we have a large group of questions here. It looks like this one is directed at Carmela. Has AHA ever spoken on the drive among hospitals to increase their capacity in suburban areas while abandoning underserved inner cities?

Carmela Coyle: Have we ever spoken on it? First of all, I disagree with the characterization of "abandoning care" in inner cities. If I didn't, I'd probably be in a lot of trouble. But I think a couple of things. You know, when many of us think about health care and about hospital organizations, what comes to mind? People think of, you know, the -- well, the big one, the Cleveland Clinic, you know, Mayo, Johns Hopkins. The first thing I'd remind folks is that half of the hospitals in this country are in small rural communities all across the nation.

The second thing I'd remind people of is that one-fourth of all hospitals lose money treating patients, that one in four hospitals operates in the red.

The third thing that I'd remind us of is the Medicare program, which amounts to about percent of a typical hospital's revenue, today is reimbursing cents for every dollar of care that's provided. Medicaid is reimbursing about cents for every dollar of care provided. So, some of the trends that you may see on the part of some organizations to reach out into the more affluent suburbs is a strategy to try to make ends meet, to try to balance what's going on in terms of under funding in other areas.

It is a strategy that's been pursued by some organizations. It is not typically a strategy that's pursued by the majority of organizations. And I guess final point, hospitals continue to remain committed to access in their communities. We remain the only place where there is a mandate to treat every patient who comes through our emergency doors regardless of their ability to pay, and that is something that's held very seriously by our nation's hospitals, and it's a commitment that we take very seriously as well. So, is it going on? Yes. Is it a significant trend? My view of that is no.

Debra Draper: Okay. This is for any of the panelists. Where are the employers? If better primary care or medical management lowers costs, why aren't employers demanding their health care plans capture the savings, benefits, drives, falling hospital admissions and revenues? Who supports the infrastructure that we need in hospitals?

Donald Fisher: I'll just jump in a little bit. You know, I -- you know, when you look at where people work in the United States today, most people work in small companies. They don't work for the IBMs and the Federal Express, and so forth. They work in small businesses, and most of the small businesses -- you look at the trends -- have been dropping their health insurance over the last five years. I think the employers ought to get out of the way, and I think that we need to have an individual insurance mandate and get away from this employer mandate model so that individuals are responsible directly for purchasing their own insurance. They can select their insurance themselves. If you look at a small employer, you know, the insurance companies will come in and they'll say yeah, we'll underwrite you but percent of your employees must be in our plan. So, by definition, you have one plan that the employees can choose from, which is what most Americans have today. So, we need to get the employers kind of out of the middle of this health delivery system game and get the individuals engaged and have more patient-centered care as a result of it.

Robert Berenson: If I could just say I know the next panel is going to be specifically taking up the issue of employers, but -- and I see Helen Darling is on that panel. She -- her organization, the ERISA Industry Council, have been very interested in this whole medical home idea, and I know the American College of Physicians and the other primary care groups that are promoting the medical home are working with at least some employer groups about the importance of it.

So, I'm not saying they're necessarily in the leadership, but I think they also understand the problem of care coordination, the silos of care, and are interested. The issue of the role of employers in our health care system goes well beyond that comment.

Carmela Coyle: Can I just add -- I think there is a lot of agreement on what needs to be done. I think there's also a fair amount of frustration that everybody's going at it in their own separate way. So, you've got insurers going at it one way and employers going at it another way, providers going at it another way, and there is a growing frustration that I hear within the field of just a frustration and a sense of potential futility that we're all trying to do the same thing, and it's in no way organized or coordinated, and we're just trying to check boxes and not really achieving the change that if we came together we might be able to do.

Debra Draper: Okay. I'm also going to say if you have questions and you want to go up to the speaker, we could probably -- or the microphones -- we could probably take a couple of those from the floor as well.

So, this next question is for Don. Why do you appear to be pessimistic about any material changes in the health care payment policies despite major underlined problems, such as rapidly rising health care costs?

Donald Fisher: Did I come across pessimistic? Heaven forbid. I'm the optimist. No, I think it's just a check of reality. It took ten years to get RVRVS through the Congress, and I think it'll take equally that long to get to a results-based payment initiative where we would pay based on results to entities and not individual providers providing the care. That's just being a realist, I think, in terms of what it takes.

I also think that you've got the Medicare program as a driver, and the Board of Directors of Medicare is the United States Congress, and it's very difficult for the United States Congress to deal with the Medicare program and to be sophisticated in moving the program the way it needs to move as a body of, you know, members of Congress. They just don't have that expertise. They don't have that ability. It's too political. So, what we really need to do is to go to a Federal Reserve type of organization where we'd actually have a body of people who would be empowered to make decisions about the program who are removed somewhat from the political stream that Congress is faced with every day. I mean, look at the issue just this last week over the SG program. I mean, here's something, a very good program, and we've got a divided house now between the White House and the Congress and it -- you know, these children could fall between the cracks as a result, so we need to move it away from Congress, and I think we could then be less pessimistic and much more optimistic about the change that's needed. But it's all about the money. If you listen, it's all about the money.

Debra Draper: This next question is for Bob or Mai. Ms. Coyle mentioned the trend of health plan consolidation. Has this spurred increased attention to hospital physician cooperation to counterpressures from plans, our rates, and services?

Hoangmai Pham: Want me to take it first?

Robert Berenson: Well, no, my immediate response would be that -- I mean, I'm reminded of -- the Wall Street Journal frequently in their editorials talks about how Medicare has Soviet-style price controls, and my sort of response to that is health plans do, too. They just pay more. And health plans, since they're giving up, have largely abandoned capitation, essentially have a siloed payment to the hospitals and a siloed payment to doctors. The doctor payment is based on Medicare's RVRVS. It's not identical. They -- on the hospital, some have moved to case rates. Largely they're paying per diems. So, the docs in the hospitals are in separate pools. What I think is happening in markets is that the doctor side -- well, on both sides there's an attempt that -- getting larger to have more negotiating leverage. So, I think that that (off mike) HSC documented the hospital merger activities to have the horizontal mergers to develop hospitals systems so they have more negotiating leverage. And separately, like later, specialist physicians have figured out that they can bet more bargaining power by being larger, and so you have a lot of single specialty mergers.

But I don't -- I do think in some communities -- and, Mai, I'd want your opinion of this -- some primary care physicians who have always felt that they really don't have any power in negotiating have been more attracted to the employment model with hospitals where the hospital might be negotiating on their behalf and they can sort of ride the coattails of the hospital, but for the most part because payment systems remain siloed on the private side as well as in Medicare, I haven't seen that kind of collaboration.

Hoangmai Pham: Yeah, I mean, my smart-ass response is going to be that it's a tail of two markets in every market. It's a tail of physicians essentially taking dictated rates if they are in small, medium, or solo practices no matter what specialty they're in, but particularly if they're primary care physicians, and on the other side you have the integrated systems and the large practices whether they be multispecialty or single specialty, and they do just fine with the health plan consolidation.

Debra Draper: Okay. This looks like it's for any of the panelists. Any evidence of use of quality and cost information by payers or consumers?

Hoangmai Pham: I think this harkens back a little bit to the earlier question about where the employers are. One of my overall impressions from our visits this round was sort of the starkness and contrast between what I perceive -- and this is an outsider's perception because I'm not on the team that interviewed all the private sector respondents, but from the provider outsider perspective, it seems as if there is a lot of creativity and energy around insurers and employers trying to work with providers on a variety of initiatives: quality measurement and reporting and other kinds of feedback loops, now prior authorization.

They're not all positively, you know, received, mind you, but nevertheless a lot of activity, and to me stark contrast to the amount of activity on the consumer side, cost sharing aside. Once there is a tiered network or high-performance network, there's no steerage of patient volume. It's just posted. The designations are just posted on a website. So, Virginia Mason can do all that it does with lean, but they're not going to see any new patients steered to them. Not that they need it, they're full. But, you know, that was not the promise that was put on the table. So, I think that contrast is worth noting.

Carmela Coyle: From the -- I'm sorry, go ahead please.

Donald Fisher: Go ahead. Go ahead. Go ahead now.

Carmela Coyle: I was going to say from the perspective of the hospital field, I'd say are payers using the information? Yes. The real question is how are they using it and in some cases -- in many cases based on conversations. It's not being used well. I think to Dr. Pham's comments. Are consumers using it? I think the answer is certainly more than they were before. We've got much more information that's out there and available to consumers, but I think the jury's still out on how they're going to use it, and to me that's the important question. You may go look at the information. What we know much less about is is it affecting people's decision making? How is it affecting their decision making? Is it the right information? Is it the information consumers are looking for. And I still think we have a long way to go.

Donald Fisher: I was just going to say we've got a lot of examples within our membership of medical groups who have driven up quality and lowered costs and are doing so to the benefit of the patient. But I think the best place to look is the group practice demonstration that Bob mentioned earlier -- the PGP demo of CMS. In the first year of that study they actually saved Medicare about $19 million overall if you get above the threshold of the two percent required for them to save. They did very well on all the metrics for quality as well, and that was just in the first year. And the million was after they made significant investment in infrastructure, because even though they had sophisticated electronic medical records, they really needed to invest heavily into redesigning some of those systems and creating measures around the metrics that were being reported to CMS in order to a really good job. At the end of the day, if you look at the first year's data from the PGP demo, they saved money and improved quality. And the way they were able to do that is there was gain sharing back to CMS in order to recover some of their upfront costs and for the decline in revenue for increasing the quality over time.

Debra Draper: Okay. We're just going to do one more question and then we're going to take a break, but this is for Mai. What did you mean about some hospitals requiring doctors to declare allegiance and how does this affect pressures for them to become employed?

Hoangmai Pham: So, a couple of examples are -- well, the prime examples would be the Cleveland and Boston markets where there are very large influential hospital systems growing in strength in the markets and wanting to secure both referral base for the coronary care, the high-tech care that we talked about, but also just wanting to grow, you know, building on their success, and in both of those markets some of the most influential systems are essentially telling physicians -- demanding that physicians maintain an exclusive affiliation with one or another system where there are only a few to choose from. And it is forcing some physicians into very uncomfortable positions that the hospitals realize.

So, in one case it was -- the pressure was transmitted through a requirement for the adoption of a compatible electronic medical record. Physicians who wanted to remain affiliated with the system and benefit from a negotiating leverage that that system enjoys, had to choose either their home grown system or an approved commercial product. But there was a competing also large system that was asking the physicians to choose a different commercial product. There's a deadline, and that group has to decide, and they're tortured, and they feel an emotional pull toward the lesser system, but when they think with their heads they will probably go with the largest system in the market, and that's sort of the type ofactivity that we're seeing at the margin.

Donald Fisher: I just have to comment. I'm not sure that's a bad thing --

Hoangmai Pham: Yeah.

Donald Fisher: -- when you look at it from the patient's point of view. The more connection we have across physicians with electronic medical records so that information is shared, the less redundant testing there'll be, the less questions that'll be needed to ask every time they go from physician A to physician B, and what we need are more virtual medical groups out there. We're not asking for everybody to go into a medical group. But we need these virtual groups, like in the PGP demo there's one of those. It's a PHO that Bob mentioned. That's what we really need, and I don't think this is a bad thing generally. I think what's really bad is when you have individual physicians out there with no accountability. Nobody looks over their shoulder.

If you're a solo practitioner out there today, you can do anything you damn well please and nobody's looking over your shoulder. I call it the private practice of medicine. If you want to go into the public practice of medicine, you join a virtual group or a group where you've got a common medical record where everybody on that team sees what you did with that patient and what you didn't do with that patient. That's public practice of medicine. That's public accountability. I don't think it's good for this country to have a lot of disaggregated physicians out there that are not connected without any accountability. We've got to get these virtual groups connected so there is accountability and we can drive up this coordinated care and quality.

Hoangmai Pham: Yeah, just a caveat to that is that there are some markets where it's not entirely clear that they're structured to perfectly support that vision, which I agree with.

Donald Fisher: We need to get it there.

Hoangmai Pham: But there are -- you know, there are markets where the edges of competing hospital systems overlap greatly, and there's a lot of tension there, and it's not clear to me how in those situations one creates -- unless everybody really is at the table all at once, and there's shaky evidence that that helps or hurts, you know, to come up with a single vehicle. Debra Draper: Well, we're going to wrap up. I just wanted to -- if you all will join me in thanking your excellent set of panelists this morning.

Debra Draper: Thank you.

PANEL NUMBER TWO: Employer and Health Plan Trends

Paul Ginsburg: Is this on? Okay. I know that the audience is very much looking forward to this panel about insurer and employer issues, because so many of the questions for the previous panel really were about, partly at least, what insurers and employers are doing, and I'm not going to spend a lot of time on introductions. We're going to follow the format as the last panel, and we're going to start with a presentation of the research by Jon Christianson. Jon is a Hamilton Chair at the University of Minnesota, and more important than that he's been a senior consulting researcher with HSC, and he's been involved as a valued member of our team throughout all six rounds of site visits. So, he really has history, and he's going to make a presentation.

Then Debra Draper, who you saw at the last panel, will make some comments from the researcher perspective. And then we'll hear from Helen Darling, who is the president and CEO of the National Business Group on Health, and she has an extensive background in health benefits. She was a leading benefits consultant at Watson, Wyatt and purchased health benefits for the Xerox Corporation. And then we'll hear from Karen Ignagni, who is the president and CEO -- I don't know which one, but I'll say both -- of America's Health Insurance Plans, the leading organization of health insurers in this country, and she has led the organization for many years, and she actually also has a background in benefits for the AFLCIO, being in charge of employee benefits there. Jon?

Jon Christianson: Thank you, Paul. A lot of the stuff that I'm going to be commenting on has already been touched on in the previous panel, so this is a good opportunity to sort of continue that discussion.

We'll start by talking about a topic that has been receiving a lot of media attention here in Washington but also in the local communities in which we visit, and that is the status of consumer-directed health plans in these communities.

I think you could have summarized what we found -- was that employers and health plans continue to be -- maybe "bullish" is to strong a word, but quite optimistic about the future for these plans, despite the fact that to this point enrollment growth has been possibly slower than expected.

Typically the employers -- the large employers at least -- that are offering these plans are offering them alongside of a PPO option, and they suggest that one of the reasons that they haven't seen a lot of take-up in terms -- "a lot" meaning , percent of their employees taking up these plans -- is that at this point they're hesitant to structure the premium differences -- or at least the out-of-pocket -- not the out-of-pocket but the contribution on the part of the employee to favor the consumer-directed health plan -- is they are still feeling like this is a complicated product, and they want to make sure that their employees understand the product and how it works, so they want to offer it as a choice. They don't want to provide a strong financial incentive yet for people to move into the product.

Probably you could characterize what's going on out there as a lot of watchful waiting but watchful waiting with a purpose, and I think an example of that would be from our Indianapolis site visit. Indianapolis is probably the site that has had the most take-up on consumer-directed health plans to this point, and it's no accident that that's also the corporate headquarters of Wellpoint, and Wellpoint purchased Lumenos, which is one of the, you know, firms to develop this product and are really now pushing the product really hard in their marketplace in Indianapolis. And the watchful there revolves around one employer, a large local employer called Marsh Supermarkets, which has decided to -- it has replaced all of its benefit options with one plan from Lumenos, and as we went around that market, the idea was well, we're going to see what happens with Marsh. And you can go from market to market and see this. They're watching these sorts of employers that are making the strongest, most aggressive moves; and, depending on what happens, what the experience of those employers is, I think either we can see a substantial sort of new round of enrollment in these products or we can continue to see relatively (off mike), and that's actually going to be interesting to follow in our next round of visits.

We have seen increases in cost sharing -- cost shifting to employees. That's continued. But I think the interesting thing that we found out in this round of site visits is that it's moderated. It's not occurring at the same rate or with the intensity that it has in the past. Why is that true? I think partly for some employers premium increases have moderated, or if you're self-insured the costs -- that your medical care costs are rising at a slower rate than they were four years ago. And so there's less pressure to sort of shift more cost to employees. But I think there's a more subtle explanation of it, too. I think the shifting of costs to employees was supposed to accomplish a couple of things from the standpoint of a more sophisticated employer. One is, of course, it does reduce their share of health care costs. But the other thing that it was supposed to do was place more financial incentives on employees to continue utilization, and we were told by some employers -- not a large number but some employers -- that they felt that they had moved deductibles up to the point where on the margin of further kinds of increases that they could contemplate probably wouldn't have much of a further impact on utilization and of changing people's decision making.

What has accompanied the increased cost sharing over the past few years and which we now saw very definitely in our site visits was increased pressure on employers -- from employers on health plans and providers for what employers call transparency. And what they mean by that is information on prices and quality pushed down as far as possible at the provider level that will help employees who now have these financial incentives to make informed choices to actually make those choices among providers. There's a lot of pressure, but this as become -- this is a very challenging thing for health plans to do. Part of it is technically challenging just to figure out how to present those prices, to calculate them, how to present them so that they are most useful for employees. But part of it is political in terms of their relationships with their provider networks and how far they want to go in terms of price transparency. It turns out that providing information about differences in quality is, in some sense, less controversial for health plans and something that providers, you know, are concerned about the technical issues there, too, but maybe less so, less controversial than the pricing information.

Along with this responsibility for a greater share of costs, we found in this round that consumers were being asked to their greater sense of responsibility for lifestyle and treatment decisions. So, along with this pricing information and quality information, health plans, again at the urging of employers, are providing more and more consumer support tools, information support tools. The consistent comment on those tools from the people we interviewed was they're out there, we don't think they're being used very much now, but we think this is going to be an evolving thing. The tools are going to get more sophisticated; people are going to become more aware of how they're used; and they're going to be used more over time. Right now they're not seen as anything that's really transforming health care decision making.

There's been a shift in the way that health plans are responding to employers, and I think to understand what's going on here we have to think back -- as Paul said, we've been doing this for six rounds of site visits now -- and if you look back to the late s or mid s when health insurance premiums were relative low, when we were kind of at the bottom of the insurance premium cycle, it was fairly common for large national employers to offer two or three different health care organizations -- not different products but different health care organizations -- insured products to their employees, because premiums were low. And so you got, from year to year, shifting of employees among those different products, and the business case for health plans in that situation to invest a money in disease prevention activities simply was a tough case to make. Now, the sort of modal arrangement for large employers is that large employers are insurance plans.

Large employers are self-insured. And what we think of as insurance plans are really providing services to support the insurance plans that the large employers run. So, if you think about it that way, there's not the opportunity to move between health insurance products. These employees, by and large, are there for a longer term and so from employer's point of view, the employer is asking the health plan to help manage the health of the employee population. And that's a distinct change in terms of expectations for the health plan. The health plans have responded, so that the larger national plans in their dealings in the marketplace now refer to themselves as health companies, not health insurance companies, and the whole notion there is that we are developing a set of tools and developing a whole approach to help employers manage the health care of the employees from the preventive stage all the way through.

So, there is certainly, as part of this, a heightened emphasis on the part of plans and employers, on health risk assessments. These are surveys, questionnaires that are administered to employees or employees are given the incentive to take voluntarily that generate information about healthy behavior, so it's the kind of stuff that's not in a claim chit if the health plan is processing claims data for the employer, but if they want to really go beyond that and try to help manage the health care of the employers, they have to understand health behaviors, and the information on health employers is coming in part from these health risk assessments. The plans have been fairly clever in terms of promoting different kinds of financial rewards to employees to complete health risk assessments, and what this information allows the health plans and employers to do is move beyond what I would say were fairly generic attempts to improve health in the past -- brochures on, you know, getting into a walking program kind of thing to very targeted kinds of activities around people that are at risk for the development of different kinds of diseases. The health risk assessment data is being integrated then with claims data to provide this sort of very broad picture of what is going on in the health care life of the employees. And this is being facilitated by the fact most claim submissions now are electronic. So, you have real-time claims data now. In the old days, you had this big lag in claims data supplied by providers and processed by plans so that it was not possible to sort of use the claims data as information that would allow you to take action in terms of care management or other interventions.

And as a result of all of this is the plans are making a, I think, a big effort to better integrate these kinds of various care management activities, and part of the integration involves moving in-house vendor programs which employers had previously contracted with separately from the health plan contracts. In the past, self-insured employers had a contract with health plans to the standard health plan stuff, and you might have had a contract with another entity to provide disease management services, another entity to provide intensive care management, and so forth. The way the health plans are repositioning themselves now is this health company that can do all of this stuff for you is to try to compete with these vendors in some cases by buying the vendors out or developing their own programs in-house so that they have a full range of things they can offer employers, the argument here being if you really care about integrating the care and managing the employees' health from the preventive side all the way to good care inpatient utilization, you need to contract with us, the health plan, because we have all those tools and we can use them all for you rather than sort of disaggregating these contracts to different entities.

There is still traditional managed care out there. The traditional managed care tends to be very focused, very focused in areas where costs have been increasing rapidly or where there seem to be real questions about the appropriateness of utilization. Probably the most common area in which health plans, at the behest again of employers, were taking these taking these kinds of steps were the high-end imaging services, the question here being -- sort of the way that it would be described to us typically would be well, somebody will go to a physician's office, the physician would have in the office imaging equipment. It might not be state-of-the-art imaging equipment, but it was there, it would be used as part of the diagnostic testing. A referral would be made to the specialist. Another image would be taken of the same body part with a better piece of equipment, and so forth, and so this sort of notion of duplicative imaging going on whether the imaging was of high quality, whether it was being interpreted correctly, and so forth. So, there are vendor organizations that the health plans are now contracting with that really do old-time managed care. There's preauthorization in some cases. There's accreditation of physicians' offices and machines in physicians' offices. There's audits. There's the whole nine yards. Now, where that's going in terms of whether the health plans will eventually bring that in-house or not, it's too early to tell. I think in this case what the health plans are doing now is sort of taking advantage of the fact that some of these specialty companies have experience with multiple health plans to draw on in terms of managing these services. But I think once a model for management becomes developed, we can probably see that being brought in-house again by health plans just they're trying to bring the disease management programs in-house.

We should talk a little bit about restructuring of health plan markets, and we thought that the thing that we observed that was at the local market level that probably had the biggest implementations for health plan markets was the -- were the challenges that are being faced now by locally based -- smaller locally based health plans and communities. The popularity of their -- these plans were often started by provider systems to compete with other HMOs, and they are very much stuck onthe HMO product line, and they've been a little late in terms of getting out of that product line and offering alternatives that employers are now demanding. There's also -- they also sort of have a restricted network of providers in their communities compared to some of the other health plans. Both of those things put them at a disadvantage in competing locally, and because of their smaller enrollment their ability to leverage discounts out of providers locally is also questionable. Enrollment has been declining, so that ability, whatever it was, has been eroding. And they have relatively limited access to capital to mount consumer- directed health plans and other new things that require investment in information systems.

You put this all together with the increasing preference of employers for single carriers, and you can see what kind of a problem the small local plans are having. What they're trying to do is offer new products, not always successfully. Many of them are now being taken -- to a degree which we haven't seen before -- are now being acquired by national plans or going out of business. So, we have large local plans which seem to be able maneuver in this new environment.

The hybrid pilgrim health plans and toughs of the worlds -- the group healths in Puget Sound -- these plans have more resources and large enrollment on which to base their survival strategy. But even those plans are partnering in many cases with national plans to get access to national networks so that they can serve local employers who may have employees that reside around the country.

So, we're seeing a lot of shifting around and strategic maneuvering on the part of these large local plans, but on the part of the smaller local plans it's all about survival, and, frankly, they're not surviving.

So, I guess a way of sort of wrapping up these comments would be to say we were told two to four years ago, the last two rounds of site visits, that employers were going to change their model, that they were going to change the way they related to their employees, that they were going to shift both financial risk and responsibility onto employees and they were going to provide them with tools -- the employees, that is -- to better manage their own health. And I think it's reasonable to say they're doing it. You know, you can question how quickly they're doing it, how rapidly the change is occurring, but they have stuck to the strategy and we're seeing it play out in a lot of different ways and along a lot of different dimensions, and we're seeing health plans respond to the employer demands and changing their business model as a result of that, and it's -- and I think that is probably the most interesting development. It wasn't -- I think when people were first hearing this four years ago, the question was well, are employers really serious about this, or is this just kind of a lot of lip service to the fact that a lot of costs are being shifted onto employees? And I don't think that you could reach any conclusion other than the large employers are serious about it.

Now, I think that the caveat that was mentioned by one of the panelists in the first session is very appropriate here when we about employers and when we have a question-and-answer session; that is, even among large employers, what you want out of your health benefits varies dramatically. GM is in a very different situation and Starbucks in terms of what they care about in terms of health benefits, and their solution to health benefits is going to be very different to say nothing of the difference between the large employers, large self-insured employers, which is mainly what we're talking about here -- that's mainly what we have information on -- and the very small employers that are concerned primarily about are we going to offer health insurance to our employees next year? Are we going to be able to figure out a way to do that?

So, I think that's the way we'll kick off this session, and Paul?

Paul Ginsburg: Thanks a lot, Jon. I'd like to hear any additional comments from Debra Draper, who's a member of our team that covered insurers and employers at this conference.

Debra Draper: Yeah, I just had a couple of points. I think one of the things that's important to acknowledge is that despite the limited take-up of consumer-directed health plans, the concept, the consumerism really has advanced over the past two years and we see this really manifest in a number of ways, all of which focus on the consumer taking more responsibility for their health and life style. And, as Jon mentioned, health plans have made significant investments in consumer support tools, like providing pricing and quality information to their enrollees, and they're also providing information on resources like access to WebMD or -hour nurse lines to really help their enrollees with managing their medical conditions or questions or helping them with their lifestyle management. But I think what we also see across our markets is the level of sophistication and, you know, the application of these tools and information really varies significantly, and, you know, many of these tools are still very much in their infancy and are still evolving.

The other thing that Jon also mentioned was that there's been a great deal of focus on health promotion and wellness, and I think one of the interesting developments that we've seen in the past two years is that much of the impetus for this is really coming from employers, and I think in the last two years we've seen -- in previous rounds of site visits we've seen employers take -- be a little bit more complacent or passive, but I think in this round we've seen a dramatic change in the response of employers in getting more engaged and trying to implement strategies to really look at addressing their cost trends and also positioning themselves for providing tools for their employees.

Just one other thing I wanted to point out is that despite all the activity around disease management and activities like health promotion and wellness, you know, it's really still unclear how extensively these tools are being used or if they're even changing care delivery for people. There's still very little evidence on the return on investment related to these activities, and I think that employers, despite that, are still making the investments in these activities and they continue to be concerned, as I mentioned, with rising health care costs, and they believe that it's really -- we hear crossed when their markets -- that employers really believe that these are the right things to do for their employees. And for some employers, setting up these types of tools is really the next step or -- and implement an interim step towards moving towards implementing tools like consumer-directed health plans.

So, I'll stop with that. Those were really the two points that I wanted to make.

Paul Ginsburg: Okay, let's turn to Helen Darling to speak about employer perspective.

Helen Darling: All right, thank you very much, and thank you for the opportunity to join this group and hear about these great results. When I listen to comments about what people see now versus perhaps what we expected, I'm reminded of the constant problem we have in this country of their always being a lag between the hype that you get out of trade press and sometimes proponents and true believers who of course because in many instances they overstate the case. That of course draws the journalists to them. If you reasoned and you qualify everything, you're not as likely to get interviewed or quoted.

So, what you get always is well, what's the latest thing. In fact, I was always amused when I'd be called first about well, what is this? Are employers getting out of the game? And there's an exit strategy and all the usual terminology. And I'll say actually no, you know. In fact -- anyway, go on and on, and that of course would be ignored. And then they'd say well, isn't it true that consumer-directed health care failed? And I said well, it didn't even get started yet. But they didn't want to hear that either. So, I guess we'll just note that a lot of what we're hearing I think is an accurate reflection of what is the normal, slow movement -- first of all, in almost anything in this country, in health care especially, and benefits but even more so in benefits, the strongest force in health care benefits in the country, if you're looking at it from the consumer side, is inertia. Most people never read their material. They should but they don't. Even when th