Mid-Atlantic Health Law TOPICS

A version of this article was published in Bar Bulletin, May 2015 and in The Daily Record on October 21, 2015.

The Population Health model of health care is sweeping the country, as government, health insurers and even hospitals are now incentivizing physicians to change their approach to patient care to keep people healthier and lower health care costs. These incentives include paying health care providers to keep people healthy, or sharing the resulting savings with providers.

This article explores the underlying assumptions and implications of this trend, and describes some of the aspects of the trend specific to Maryland.

A. Patient Encounter Versus Patient Encounters

In many ways, Population Health involves a shift in focus from an individual patient encounter to patient encounters in general. Historically, physicians have been trained to treat patients, one by one, not unlike a factory worker working on an assembly line. The patient appears, the physician takes a history, perhaps does some diagnostic tests, recommends treatment or no treatment, and then the assembly line delivers another patient to the physician.

Population Health, however, instead asks physicians to think about all of their patients in a particular category at once. Physicians are being asked to think about all of their diabetic patients or all of their patients with congestive heart disease, and then to deal with those patients as a group.

Each physician may know each of his or her patient's blood sugar level, but does the physician know the average blood sugar level of all of the physician's patients? Likely not. However, if the physician were paid to reduce the average blood sugar level of all of his or her patients, then the physician would know that number, and the physician would begin to take steps to cause that average level to be reduced.

Similarly, instead of a doctor's office staff being doctor centric, meaning the staff's job is to serve the doctor, the staff may become patient centric. Instead of seeing a patient only when the patient remembers to make an appointment, perhaps the office staff will nag the patient to make an appointment. Instead of the doctor writing the patient a prescription, and never knowing if the prescription is filled, perhaps the doctor's staff will make follow-up calls to see that the prescription is filled.

B. Moneyball

In many ways, the Population Health wave that is sweeping the medical profession is not dissimilar to the Moneyball wave that swept over professional baseball. As author Michael Lewis has pointed out, the Oakland As front office began looking at baseball totally differently, and began collecting different statistics, resulting in the As winning many more baseball games and doing so at a much lower cost than the rest of baseball.

Population Health rests on two of the same pillars supporting Moneyball. First, it recognizes that behavior can be modified by money. You get what you pay for. Second, just as all major league baseball teams now collect and analyze very different data than previously collected to evaluate players, health care providers are now collecting and synthesizing data as never before.

For example, hospitals are now giving patients LACE scores to determine which patients are most likely to be readmitted to the hospital within 30 days. Patients' LACE scores depend on how long they were in the hospital (1-7 points depending on the length of stay), whether they were admitted through the emergency department (if so, add 3 points), whether they have comorbidities (1-6 points depending on the comorbidities), and how many times they have visited the emergency department during the last six months (up to 4 points).

If the patient's LACE score is over 9, then there is a high risk that that patient will be readmitted to the hospital within 30 days. Accordingly, case managers are being assigned to these high risk patients to make sure that the patients: know why they were in the hospital; know what medicines to take; make appointments with their primary care doctors within one week of leaving the hospital; etc.

C. HSCRC

This Population Health wave is being accelerated in Maryland, because of the way Maryland hospitals are paid. In the other 49 states, Medicare pays hospitals according to a Medicare fee schedule. However, in Maryland, Medicare pays Maryland hospitals at the rates set by Maryland's unique hospital rate setting commission, known as the Health Services Cost Review Commission (HSCRC).

While Maryland's "waiver" from Medicare hospital payments has been in place for over 30 years, Medicare and Maryland entered into a new version of this arrangement, effective January 1, 2014.

That arrangement, often called the "New Waiver Test," has several components, one of which is that annual all payor per capita inpatient and outpatient growth in hospital charges in Maryland is now limited to 3.58% per year. In other words, no matter what is charged to any individual patient, how many patients show up at Maryland hospitals or how sick they are, Maryland hospitals as a group cannot charge more than 3.58% more per year than they charged the year before.

This component of the New Waiver Test recognizes that total health care costs are a function of the rate paid or charged for each health care service multiplied by the volume of the services delivered.

Historically, people have tried to slow down the growth in health care costs by manipulating, flattening or lowering the rate paid for each unit of service delivered. Population Health controls health care costs by focusing on the volume of services delivered rather than the rate of each service delivered. If one controls utilization, one controls cost. Basically, if people are kept healthier, they will stay out of the hospital, and health care costs will stop growing at recent history's extraordinary pace.

Faced with this new cap on total Maryland hospital inpatient and outpatient revenue, the HSCRC asked each Maryland hospital to adopt a cap on that hospital's revenue. (These caps are called Global Budget Revenue or GBR for urban and suburban hospitals and Total Patient Revenue or TPR for rural hospitals.)

If a Maryland hospital's GBR is $300,000,000 per year, for example, and only one patient shows up at that hospital in that year, that Maryland hospital can charge that patient $300,000,000. On the other hand, if more patients show up at that Maryland hospital this year than last, or sicker patients show up at that hospital this year than last, generally that Maryland hospital still may only charge $300,000,000 or less to all of those patients during that year.

This reality is quite different than the past reality for hospitals, and quite different than the reality faced by most economic actors. Historically, Maryland hospitals, as well as economic actors in other industries, were and are able to earn additional revenue and additional marginal profit when they provide additional services. That is no longer the case for Maryland hospitals.

In fact, the profits of Maryland's hospitals now go up only if they deliver less services or deliver services more efficiently. Accordingly, Maryland hospitals now have an extraordinary incentive to keep people healthier and out of the hospital.

This focus on utilization, and not payment rate, is at the heart of Population Health. If health care providers are paid on a fee for service basis, it is believed that health care providers will deliver more and more services. However, if they are paid to keep people healthier or receive a share of the savings that result from keeping people healthier, then it is believed that less services will be needed.

D. Implications

The implications of all of the foregoing include, but are not limited to the following:

1. Instead of hospital administrators questioning emergency department doctors as to why one out of five of their patients are not admitted, hospital administrators may question them as to why one out of five patients are being admitted.

2. Many more patients will be "observed," instead of admitted.

3. There will be a greater emphasis on discharge planning.

4. Doctors will be paid to provide services that keep people healthier.

5. Greater and greater parts of the payments doctors receive from hospitals and payors will only be paid if patient populations are kept healthier.

6. Duplicative testing of patients will be lessened by the utilization of uniform patient identifiers.

7. Specialists will be required to adhere to clinical guidelines that treat patients more efficiently and effectively.

8. Payors and hospitals will share the gains associated with (a) keeping people healthier, (b) following clinical guidelines and (c) using effective but less expensive supplies.

9. Many outpatient services will be moved off hospital campuses where they can be provided at lower costs.

10. Maryland hospitals (a) will stop acquiring physician practices just to acquire greater market share, and (b) may begin regurgitating some of the physician practices they have acquired in their attempt to garner market share.

11. Primary care physicians will be encouraged to direct their referrals to the most efficient specialists, and specialists will be encouraged to direct their referrals to lower cost hospitals.

As Michael Lewis, the author of Moneyball: The Art of Winning an Unfair Game, has said, "if you challenge conventional wisdom" you may find "ways to do things much better than they are currently done."