Medicare Reform Part 4 - New Model For Reimbursement - Hosptials

In my past blogs about Medicare Reform, I established the reasons for the need for Medicare Reform with some suggestions to control costs like shared decision making (SDM), Medical Ethics reform, and fixing Medicare Part D for Prescription Drugs.

Plus, I created a whole new physician reimbursement system based on an hourly rate that is determined by factors such as board certification, experience and quality incentives multiplied by a complexity factor that ensures that quality physicians who spend time with their patients are valued as much or more than doing a procedure on them.

In this blog, I continue with my suggestings for hospital reimbursement reform. Hospitals are barely getting by. My own administrator admitted to me that the only reason the hospital can function financially is because of the outpatient surgery center. That is the big money-maker. Pretty much everything else loses money for the hospital. And yet, my system will cause this avenue to decrease. Thus for hospitals to exists as an essential community service, there must be some way of funding hospitals to keep them open.

Here is my plan:

1. The hospital has certain fixed infrastructure costs that have nothing to do with diagnosis: size of hospital and number of beds, environment issues (heating, air etc...), employee staff, laboratory and radiology infrastructure. I'm sure there are numbers out there that estimate what these costs are on a bed basis. Hospitals could then be given a lump sum to cover these fixed costs, which I believe could be in part covered by disaster-preparedness funds, as hospitals are an integral part of disaster planning.
2. The lump sum could be added to based on a number of desirable factors such as: lower hospital acquired infection rates, above average mortality rates, lower nurse-to-patient ratio, higher proportion of R.N.s, higher numbers of uninsured patients treated, and rural or inner city status. Fines could be relegated for excessive mortality rates, excessive contamination rates, and things like excessive bed sore rates.
3. Further lump sums will be allocated for the Emergency Departments with bonuses for low nurse-to-patient ratio, and high tech (nurse assistant)-to-nurse ratio, Level 1 trauma designation, number of available specialists on call, in-house hospitalists to admit patients, and dedicated fast-tracks. Plus, funds will be given for designated Observation Units that are fully staffed since those units (for certain diseases) significantly decrease overall length of stay and save costs, while improving efficiency and care.
4. Beyond the lump sum amount, hospitals will then be paid a daily "rental fee" for each patient on the basis of the acuity of the bed (i.e. ICU and OR beds cost more than floor beds). In essence, Medicare is paying for the bed being used, AND the beds not being used (as a service that those unused beds provide to the community).
5. Boarding of patients in the ER will be disincentivized since the more patients "rent" an ER bed, the more money a hospital makes. Thus rewarding efficiency. Medicare won't pay for a floor bed if the patient is in the ER (currently patients in the ER after admission get paid as if they are in that hospital bed even though they aren't there).
6. Testing will be paid for on an individual test basis based on a standard fee schedule determined based on the actual cost of providing the service plus a 15% margin of profit (the infrastructure costs of these tests were dealt with in the above lump sum payment).
7. To prevent abuse, like the previous blog for physicians, diagnoses will be used as a tracking device and compared amongst hospitals around the country, and those hospitals exceeding 2 standard deviations will be forced to receive only the median "rental charge" and "testing charge." The government will evaluate community needs by population to determine the number of beds (i.e. supply) to limit or encourage hospital growth as needed.
8. For-Profit hospitals will have to come up with value-added solutions to obtain more money from patients willing to pay extra for those services. Could this lead to for-profits eventually getting larger numbers of wealthier patients? Yes. But the payment structure will be such that hospitals will receive more money for better quality, less for poor quality and non-profits will still have high levels of quality.
9. Does this mean that the government through medicare will be subsidizing the insurance companies, since other insurers will only have to pay for testing and rental fees? Yes. But I believe that hospitals perform a public service and thus should have public subsidies for their infrastructure. Plus, savings that hospitals pass along to insurance companies leads to lower cost in health insurance overall, which benefits everyone. There could be some kind of hospital infrastructure rental fee that insurance companies pay to Medicare in addition to the bed and testing fee, so that insurance companies partake in the infrastructure costs. Or a Medicare infrastructure tax could be levied on insurance company's profits. I see a few options here.
10. Complications will be paid. Documented errors will be paid as well (so as not to discourage the reporting of errors). HOWEVER, as mentioned above, there will be consequences for hospitals giving lower quality care.

I have read suggestions to the effect that surgeons whose patients have complications should not have those complications paid for. The only result of such short-sighted recommendations are having surgeons refuse to perform surgery on anyone with health problems, who are overweight, smoke, or are "too old." Instead, surgeons' individual complication rates per procedure should be compared to the statistical expected bad outcomes.

If surgeons' complications fall outside of 2 standard deviations of what is expected, they will be notified that they have been "red-flagged." These physicians should be reported to the American College of Surgeons (ACS) for more specific case review. The board would be best prepared to analyze patterns and determine the best initial remediation, such as additional CMEs and targeted education. After all, the goal is improvement of patient care. If initial measures to improve complication rates do not succeed, then there may need to be a period of time away from their practice to receive residency-type supervised surgery training in order to maintain their license to practice.

In summary, when it comes to Medicare reform, it is clear that the current system of reimbursement rewards high cost care that is not necessarily high quality. To improve Medicare access, reimbursement must be altered to change the incentives. My plan does just that. It is my hope that not just my ideas but other ideas will be looked at in the search for improvement with the health care system. Also, I hope that those ideas that are dangerous and counterproductive will be abandoned.