Basic Operations and Characteristics of Hospitals

Hospitals as Organizations:

• Definition: Hospitals are organizations that provide facilities and staff to offer medical care.
• Types:
  • Private: Operate on a for-profit or not-for-profit basis.
  • Public: Owned or operated by government organizations.
• Key Facility: The defining characteristic of a hospital is the provision of beds and infrastructure for inpatient care. Without these, an organization wouldn't typically be called a hospital.

Facilities and Services:

• Basic Services:
  • Standard inpatient beds for medical and surgical care.
  • Emergency departments for urgent care.
• Advanced Services:
  • Intensive Care Units (ICUs) for patients with severe conditions.
  • Specialized units (e.g., burn units, cardiac care units, trauma centers).
  • Sophisticated surgery and testing facilities.
• Outpatient Services:
  • Emergency departments.
  • Same-day ambulatory surgery facilities.
  • Labs or imaging facilities.
  • Outpatient physician consultation facilities.

Dimensions of Variation:

1. Level of Services:
   • Basic to advanced services, up to tertiary or quaternary care.
   • Specialized units for specific medical conditions or treatments.
2. Focus:
   • General Hospitals: Treat a broad range of patients and cases.
   • Specialized Hospitals: Focus on particular areas (e.g., children's hospitals, psychiatric hospitals, rehabilitation hospitals).
   • Short-term vs. Long-term Care: Some focus on short-term care (a few days to weeks), while others on long-term care.
3. Teaching and Training:
   • Teaching Hospitals: Operate programs to train new doctors.
   • Academic Hospitals: Strong association with medical schools, often involved in research and teaching.

Staff and Roles:

• Clinical Staff: Nurses, nutritionists, pharmacists, x-ray technicians, rehabilitation specialists, and other medical professionals.
• Administrative Staff: Personnel for administration, finance, IT, human resources, and management.

Operational Context:

• Goals: Provide great medical care and operate efficiently as businesses.
• Challenges: Balancing medical care quality with financial sustainability to continue offering services.

In summary, hospitals are complex organizations that vary widely in terms of services, focus, and operational structures. They aim to provide comprehensive medical care while managing the intricacies of running a business.

How Hospitals Relate to Physicians and Intermediaries

1. Hospitals and Physicians:

Direct Employment:

• Unified Organization: Hospitals may directly employ physicians, forming a single organization.
• Example: This model is common in the UK and increasingly in the US.

Admitting Privileges:

• Separate Entities: Physicians run their own practices but have arrangements with hospitals to provide care there.
• Admitting Privileges: Physicians apply for and are granted privileges to use hospital facilities.
• Common in the US: This is the more prevalent arrangement in the US.

2. Hospitals and Intermediaries:

Stable Relationships:

• Fewer Intermediaries: In some systems with fewer intermediaries, hospital-intermediary relationships are more stable and understood.
• Payment Agreements: Even with stable relationships, payment terms and procedures need to be agreed upon.

Fluid Relationships:

• Multiple Intermediaries: In systems with many intermediaries (like the US), relationships are more flexible.
• Hospital Networks: Intermediaries create networks of hospitals, often with specific contracts and payment terms.
• In-Network Hospitals: Hospitals part of an intermediary’s network are referred to as in-network.
• Criteria for Inclusion: Some intermediaries may accept any hospital meeting certain criteria, while others have specific contracts.

Hospital Payment Methods: Charge Masters/FFS and Per Diem

1. Fee-for-Service:

• Payment Structure: Hospitals are paid a fee for each service provided to the patient.
• Chargemaster: A list of all services the hospital can provide, with corresponding charges.
• Negotiation: Hospitals and intermediaries may negotiate payments based on the chargemaster, either over specific fees or in the aggregate (e.g., a hospital might receive 60% of billed charges).
• Cost-Based Reimbursement: An alternative where hospitals present an accounting of their costs and are paid based on that.

2. Per-Diem System:

• Payment Structure: Hospitals are paid a fixed amount for each day a patient stays in the hospital, known as the per-diem.
• Day-Based Payment: The more days a patient stays, the more the hospital gets paid (e.g., 2 days = 2 times the per-diem).
• Service Independence: Payment is based on days stayed, not the specific services provided on those days.

Variations in Per-Diem:

1. Different Per-Diems for Different Services:
   • Higher per-diems for more expensive care (e.g., ICU or heart surgery) compared to routine care.
2. Different Per-Diems for Different Days:
   • Higher per-diems for the first day of surgery compared to subsequent days with potentially fewer services.
3. Carve-Outs:
   • Separate payments for particularly high-cost items, like expensive drugs, which are excluded from the per-diem and handled by a separate agreement.

These payment systems reflect different approaches to compensating hospitals for inpatient care, with varying impacts on hospital revenue and care delivery.

Hospital Payment Methods: DRGs

Key Points about DRG Systems:

1. DRG Definition:
   • DRG: Stands for Diagnosis Related Group.
   • Payment Basis: Hospitals receive a flat payment per patient hospital stay, based on the patient's diagnosis at admission.
2. Admission and Discharge:
   • Admission: When a patient enters the hospital.
   • Discharge: When a patient leaves the hospital.
   • Payment Per Stay: Each stay generates a DRG payment.
3. Grouping and Payment:
   • Diagnosis Grouping: Patients with similar diagnoses are grouped into common DRGs.
   • Algorithm (Grouper): Software assigns patients to DRGs based on their diagnoses.
   • DRG Weights: Each DRG has a weight reflecting the complexity and expected cost of care.
   • Conversion Factor: Weights are converted into payment amounts (e.g., $500 per weight point).
4. Payment Calculation:
   • Example Process:
     • Patient admitted and diagnosed.
     • Diagnosis coded (e.g., using ICD-10).
     • Grouper assigns DRG.
     • Payment amount determined based on DRG weight and conversion factor.
5. Payment Characteristics:
   • Fixed Payment: Payment does not vary with the length of stay or services provided.
   • Focus on Diagnosis: Payment is determined by conditions at admission.
6. Evolution of DRG Systems:
   • More Groups: Increased number of DRGs to capture different patient needs.
   • Procedures Consideration: Accounting for major, costly procedures (e.g., bypass surgery for heart attack patients).
7. Outlier Payments:
   • Extra Payments: For cases requiring significantly more care than the average for their DRG.
   • Outlier Cases: Cases meeting certain standards that trigger additional payments.
8. Prospective Payment System:
   • Prospective Nature: Payment based on patient condition, not treatments given.
   • Global Adoption: Widely used, with systems based on or inspired by the original US Medicare model.

DRG systems provide a standardized method for hospital payment based on patient diagnoses, promoting efficiency and cost control while evolving to address diverse patient needs and healthcare practices.

Hospital Payment Methods: Global Budgets

Key Points about Global Budget Payment Method:

1. Global Budget Overview:
   • Definition: A fixed amount of funding is provided to a hospital for a set period, such as a year.
   • Scope: Can cover both inpatient and outpatient care provided by the hospital.
2. Determining the Budget:
   • Population Assignment or Prediction:
     • Assignment: Patients are assigned to or expected to use a specific hospital, which might limit patient choice.
     • Prediction: Estimations based on factors like population size, services offered, and nearby hospitals.
   • Scope of Services: Defines the range of services the hospital is expected to provide under the budget.
3. Budget Calculation:
   • Budget Amount: Determined based on the population size and scope of services.
   • Not Based on Actual Use: Hospitals are not paid based on the number of services provided or the actual costs incurred.
4. Implementation Considerations:
   • Large Share of Business: Global budgets work best when covering a significant portion or all of the hospital's patient base.
   • Single Intermediary: More effective when one intermediary covers most patients or when multiple intermediaries collaborate on the budget.
   • Complexity with Many Intermediaries: More challenging to manage with multiple intermediaries making separate arrangements.
5. Comparison with Capitation:
   • Similarities: Much like a global capitation model, where payment is not tied to individual services or costs but to a fixed amount based on expected needs.

The global budget method aims to provide a predictable and stable funding source for hospitals, encouraging efficient care while managing costs. However, it requires careful planning and coordination to align funding with the hospital's expected patient population and service scope.

Hospital Payment Topics: Payment for Inpatient vs Outpatient Services,Hospital vs Physician Payments; Charges and Payments

Key Points on Hospital and Physician Payment:

1. Inpatient vs. Outpatient Care:
   • Inpatient Care: Hospitals often use fee-for-service, per diem, or DRG systems for payment.
   • Outpatient Care: Separate payment arrangements are often made. Could include fee-for-service, chargemaster approach, fee schedules, or even DRG systems adapted for outpatient services.
   • Global Budgets: Can cover both inpatient and outpatient care under a single budget model.
2. Professional vs. Facility Components:
   • Professional Component: The work of the physician (e.g., seeing the patient, providing treatment).
   • Facility Component: Costs associated with the hospital facilities (e.g., room, nursing staff, utilities).
   • Private Practice: Payment typically covers both components in one bill.
   • Hospital Settings: Professional and facility fees are often billed separately. For example, a surgeon might bill for their professional services, and the hospital bills for the use of its facilities.
   • Integration in Employment: Physicians employed by hospitals might have their services and facility use billed together or separately, depending on the hospital’s billing practices.
3. Charges vs. Payments:
   • Charges: The amount hospitals would like to charge, as listed in the chargemaster.
   • Payments: Actual amounts paid by intermediaries, which may differ significantly from charges. Payments can be determined by methods like DRG systems or negotiated discounts.
   • Billing and Payments: Charges are not always reflective of what is actually paid. Always verify what the payments are rather than relying solely on billed charges.

Understanding these distinctions helps in comprehending hospital and physician billing practices and ensuring accurate financial assessments.

Risk and Incentives in Hospital Payment

Understanding Risk and Incentives in Hospital Payment Systems:

Risk Transfer:

1. Fee-for-Service:
   • Risk Level: Minimal to none transferred to hospitals.
   • Details: Hospitals are paid per service or procedure, and the intermediary (payer) absorbs the risk related to patient needs and costs.
2. Per Diem:
   • Risk Level: Some risk transferred to hospitals.
   • Details: Hospitals receive a fixed payment per day regardless of the patient’s length of stay. Hospitals bear the cost if more care is needed, but they aren’t at risk for the number of patients or admissions.
3. DRG (Diagnosis Related Group):
   • Risk Level: More risk transferred to hospitals.
   • Details: Hospitals get a fixed payment per discharge. They assume the risk if a patient requires additional days or services beyond the norm for that DRG. Outlier payments may mitigate but not fully eliminate this risk.
4. Global Budgets:
   • Risk Level: Maximum risk transferred to hospitals.
   • Details: Hospitals receive a fixed budget for a set period (e.g., a year) and assume the risk for all patient care costs, including variations in patient needs and service utilization.

Incentives Created by Payment Systems:

1. Fee-for-Service:
   • Incentives: Encourages more services to increase revenue. There’s little incentive to reduce services or hospital stays as payment is per service provided.
2. Per Diem:
   • Incentives: May encourage longer patient stays since hospitals are paid per day. There is less pressure to shorten stays but no direct financial reward for extending care.
3. DRG:
   • Incentives: Motivates hospitals to reduce the length of stay and limit the services provided per admission, as they receive a fixed amount per discharge. Hospitals benefit financially by efficiently managing patient care and quickly transitioning to new patients.
4. Global Budgets:
   • Incentives: Promotes overall efficiency in resource use. Hospitals are incentivized to minimize care to stay within the fixed budget, which may risk under-use of necessary services.

Trade-offs and Challenges:

• Fee-for-Service and Per Diem:
  • Pros: Less risk of under-use of services. Encourages thorough care without financial penalty for extensive treatments.
  • Cons: Potential for overuse of services or longer hospital stays due to financial incentives that don’t align with minimizing care.
• DRG and Global Budgets:
  • Pros: Encourages efficient use of resources and shorter stays. Aligns incentives with cost control and resource management.
  • Cons: Risk of under-use or premature discharge of patients. Hospitals may be incentivized to discharge patients before it’s medically appropriate to stay within budget constraints.

Physician and Hospital Incentives Alignment:

• Challenges: Physicians, especially if they are not employed directly by the hospital, might not share the same incentives as hospital administrators. This can lead to conflicting priorities regarding length of stay and service utilization.
• Integrated Organizations: Aligning incentives might be easier when physicians are part of the hospital’s organization, ensuring that both parties work towards common goals in patient care.

Coping Strategies:

• Monitoring and Measurement: Implementing systems to monitor care quality and outcomes can help ensure that incentives don’t lead to negative outcomes, such as premature discharges or unnecessary care.
• Hybrid Models: Combining elements of different payment models (e.g., DRGs with quality monitoring) can help balance efficiency and quality of care.

Understanding these aspects of risk and incentives helps in designing hospital payment systems that promote both efficiency and high-quality care.

Independent Facilities - Structure and Payment

For healthcare providers who are not physicians or hospitals, payment arrangements often bear similarities to those for physicians and hospitals but can also have unique aspects depending on the type of provider and their specific services. Here’s a brief look at some common payment models for various types of healthcare professionals and organizations:

1. Nurses, Technicians, and Allied Health Professionals

• Salary Model:
  • Description: These professionals are often paid a fixed salary by the organization they work for, such as a hospital or physician practice.
  • Similarity: Similar to salaried physicians within group practices or hospitals.
  • Difference: These professionals might not bill directly for their services; instead, their salaries are covered by the facility's overall funding or patient revenue.
• Fee-for-Service:
  • Description: In some cases, particularly with independent practices or clinics, these professionals might be involved in fee-for-service arrangements where their services are billed individually.
  • Similarity: Similar to how individual physicians might bill for each service provided.
  • Difference: Often, these professionals do not handle billing themselves but are reimbursed through the facility or practice where they are employed.

2. Independent Practitioners (Dentists, Optometrists, etc.)

• Fee-for-Service:
  • Description: Independent practitioners, such as dentists or optometrists, often use a fee-for-service model where they charge for each service or procedure.
  • Similarity: Similar to fee-for-service billing for physicians.
  • Difference: They may operate independently or in small groups and have direct arrangements with patients or intermediaries for payments.
• Direct Payment:
  • Description: Some independent practitioners may not work with insurance intermediaries and instead have patients pay directly for services.
  • Similarity: This is similar to out-of-network physicians who require direct payment from patients.
  • Difference: This model can be more common among independent practices where insurance negotiations might be less prevalent.

3. Independent Facilities (Labs, Diagnostic Centers, etc.)

• Fee-for-Service:
  • Description: Independent diagnostic facilities or labs often use a fee-for-service model, billing for each test or diagnostic procedure performed.
  • Similarity: Similar to how physicians or hospitals might bill for individual services or tests.
  • Difference: These facilities may have specific billing codes and charge schedules tailored to diagnostic services.
• Per Diem or DRG-like Payments:
  • Description: Some diagnostic or ambulatory surgery centers might use per diem or DRG-like arrangements, particularly if they are part of a larger network or have agreements with hospitals or insurance companies.
  • Similarity: This is similar to payment models used in hospitals.
  • Difference: These arrangements might be less common and more specialized compared to traditional fee-for-service.

4. Long-Term Care and Other Facilities

• Per Diem:
  • Description: Long-term care facilities, such as nursing homes, often use per diem rates where they are paid a fixed amount per day for each patient.
  • Similarity: Similar to per diem arrangements used by hospitals.
  • Difference: This model is adapted for the extended duration of care in these facilities.
• Global Budgets:
  • Description: Some long-term care facilities may operate under global budgets if they are part of a larger health system or network.
  • Similarity: Similar to global budgets used by hospitals.
  • Difference: The scope of services covered under global budgets might be different, focusing on long-term care needs rather than acute care.

In summary, while many payment arrangements for various healthcare providers share similarities with those for physicians and hospitals, each type of provider may have unique models adapted to their specific services and operational contexts.

Health Care Systems and Larger Provider Organizations

The formation of larger, integrated healthcare organizations is indeed a significant trend with potential benefits and challenges. Here's a summary of the key types of integrated provider organizations and related models:

1. Hospital Systems

• Description: Larger organizations comprising multiple hospitals that are part of the same company or system.
• Potential Benefits:
  • Shared resources and staff.
  • Centralized administration.
  • Potential for coordinated care across multiple facilities.
• Concerns:
  • Risk of excessive market concentration and loss of competition.
  • The effectiveness of integration depends on execution and management.

2. Physician-Hospital Organizations (PHOs)

• Description: Organizations where hospitals employ physicians or acquire physician practices, integrating them into the same entity.
• Potential Benefits:
  • Streamlined care coordination between hospital services and physician practices.
  • Potential for better alignment of clinical practices.
• Concerns:
  • Integration can be complex and may not always lead to improved care.
  • Managing relationships between hospital administration and independent physicians can be challenging.

3. Integrated Delivery Networks (IDNs) or Integrated Delivery Systems (IDS)

• Description: Comprehensive systems that aim to integrate a wide range of services, including multiple hospitals, physician practices, and other facilities, into a cohesive network.
• Potential Benefits:
  • Coordination across a broad spectrum of services.
  • Potential for a more seamless patient experience.
  • Better management of patient care and resources.
• Concerns:
  • Complexity of managing and coordinating across multiple types of providers.
  • Risk of becoming unwieldy and inefficient if not well-managed.

4. Accountable Care Organizations (ACOs)

• Description: Groups of healthcare providers who voluntarily come together to provide coordinated care while remaining financially independent. ACOs often participate in shared savings models, particularly within Medicare.
• Potential Benefits:
  • Encourages collaboration and coordination among diverse providers.
  • Focus on quality and cost-efficiency, with potential for shared savings based on performance.
• Concerns:
  • Clinical integration without financial integration can lead to challenges in aligning incentives.
  • Success depends on the effectiveness of the coordination and the payment model.

Emerging Innovations

• Team Structure and Collaboration: Efforts to improve care through better team-based approaches and collaboration, especially for complex patient populations.
• Technology Solutions: Integration of technology such as apps, telehealth, and improved data flows to enhance care delivery.
• Remote Care: Expanding access to care through telehealth and remote monitoring technologies.

Summary

• Benefits of Integration:
  • Potential for improved coordination and efficiency.
  • Ability to manage a broad range of services and resources more effectively.
• Challenges of Integration:
  • Complexity of managing larger organizations.
  • Risks of market concentration and alignment of incentives.
  • Balancing clinical and financial integration to achieve desired outcomes.

Understanding these trends helps to navigate the evolving healthcare landscape and assess how different models impact care delivery and payment structures.

Pay for Performance

Pay for Performance (P4P) is a model aimed at improving the quality of care by linking financial incentives or penalties to performance metrics. Here’s a breakdown of key aspects and considerations related to P4P:

1. Concept and Implementation of P4P

• Definition: P4P involves providing financial incentives or imposing penalties based on whether providers meet specific performance expectations. These expectations are usually set around quality of care and clinical outcomes.
• Common Features:
  • Performance Measures: Can include clinical process measures (e.g., adherence to guidelines), clinical outcome measures (e.g., patient recovery rates), patient experience surveys, and other relevant metrics.
  • Bonus Structure: Often implemented as a performance-based bonus on top of existing compensation methods, such as fee-for-service. For example, a physician practice might receive a bonus for achieving a high percentage of patients receiving recommended services.

2. Key Questions in Designing P4P Systems

• Selection of Measures:
  • How many and which performance measures should be used?
  • How can agreement be reached among stakeholders on these measures?
  • How to avoid a focus solely on measured aspects, potentially neglecting other important areas of care?
• Performance Goals:
  • Should the system reward those who exceed a set threshold or just those who perform the best (relative performance)?
  • Should improvement over time be a requirement for continued eligibility?
• Adjustment for Patient Variation:
  • How to account for differences in patient populations, ensuring providers caring for more complex cases are not unfairly penalized?
• Financial Stakes:
  • What proportion of provider pay should be tied to performance?
  • Balancing between motivating providers with sufficient stakes and avoiding excessive pressure that could harm providers or distort care.

3. Examples and Context

• Implementation Examples:
  • In the US, hospitals might be rewarded or penalized based on metrics like readmission rates.
  • In the UK, the Quality and Outcomes Framework (QOF) has historically linked a significant portion of pay to performance, though the percentage has varied over time.
• Challenges and Evolution:
  • Optimism vs. Skepticism: Some believe P4P can drive significant improvements in care quality, while others worry it might lead to unintended consequences, like gaming the system or neglecting unmeasured aspects of care.
  • Ongoing Adjustments: Programs are continually evolving based on evaluations and feedback, with varying levels of success and impact on care quality.

4. Implications and Future Outlook

• Impact on Care Delivery: P4P aims to incentivize providers to enhance quality but must be carefully designed to ensure it drives genuine improvements without negative side effects.
• Monitoring and Evaluation: Continuous assessment of P4P systems is crucial to understand their effectiveness and make necessary adjustments.

In summary, P4P is a growing trend in healthcare payment systems that seeks to link compensation with quality and performance. While it holds promise for improving care, its design and implementation require careful consideration to balance incentives and avoid potential pitfalls.

EMRs, EHRs, and PHRs

Electronic Medical Records (EMRs) and Electronic Health Records (EHRs) are digital systems designed to manage patient health information.

Electronic Medical Records (EMRs):

• Definition: Digital versions of the paper charts traditionally used by clinicians. They store patient information, including medical history, diagnoses, treatments, and follow-up plans, within a single practice or facility.
• Scope: Primarily used within individual practices or facilities.

Electronic Health Records (EHRs):

• Definition: A more comprehensive digital record that may integrate data from multiple practices or healthcare systems, providing a broader view of a patient's health across different providers.
• Scope: Designed to capture a more complete picture of patient health, often including information from various healthcare settings and providers.

Key Considerations:

1. Interoperability: Ensuring different EMR and EHR systems can effectively communicate with each other to facilitate seamless information exchange between providers.
2. Patient Access and Engagement: Allowing patients to access and manage their own health information, potentially through Personal Health Records (PHRs), and ensuring their involvement in their care.
3. Privacy and Security: Protecting patient data from unauthorized access and breaches while maintaining compliance with regulations.
4. Utilization: Leveraging EMRs and EHRs to improve care quality, track trends, and manage patient follow-up more effectively.

Personal Health Records (PHRs):

• Definition: Electronic applications used by patients to record and manage their own health information, which can be shared with healthcare providers.

The evolution from paper to digital records has enhanced the management of patient information but also introduces challenges in interoperability, patient engagement, and data security.

Providers, Provider Incentives, Data, and Tools

Broader Lessons for Healthcare Provider Organizations and Data Use

Incentives and Innovation

1. Impact of Payment Models:
   • Fee-for-Service (FFS): Providers are incentivized to offer more services since they are paid per service provided. This model supports the adoption of new treatments or technologies that can be billed. However, providers may be less motivated to implement innovations that reduce service use, potentially impacting revenue.
   • Risk-Based Models (Capitation, DRGs): These models provide fixed payments per patient or episode of care. Providers under these systems have more autonomy and are encouraged to seek cost-reducing innovations, even if they are not directly billable. They might focus on efficiency and patient management innovations like electronic communication.
2. Organization Size and Resource Availability:
   • Large Organizations: They often have the resources to implement and manage new technologies or innovations. They may also be more equipped to integrate various systems and capture extensive data.
   • Small Organizations: They may face challenges in adopting new tools due to limited resources. Their ability to innovate may be constrained by financial and logistical limitations.
3. Focus of Innovations:
   • Hospitals: Primarily interested in innovations that enhance hospital care or operations. They may be less focused on tools that are more relevant to outpatient or primary care.
   • Integrated Delivery Networks (IDNs) and Physician-Hospital Organizations (PHOs): They have broader interests in innovations that support integrated care across different types of providers.

Data Utilization

1. Electronic Health Records (EHRs) and Electronic Medical Records (EMRs):
   • Single-Organization Systems: Useful for tracking care within a specific organization but may miss data from other providers. They are valuable for detailed, in-house insights.
   • Integrated Systems: Larger, integrated systems can provide a more comprehensive view of patient care across multiple settings, increasing the value of data for tracking trends and improving healthcare delivery.
2. Payment Data:
   • Detail and Breadth: Data from intermediaries (e.g., insurers) can provide detailed billing information from multiple providers, which can be beneficial for understanding patterns and trends in care. This data may offer insights beyond what is available from a single provider.
3. Data Integration:
   • Value of Comprehensive Data: Integrated systems that consolidate data from various sources (hospitals, primary care, specialty care) can enhance the ability to understand and improve patient care across different settings.

Key Takeaways:

• Align Innovations with Incentives: Understand how different payment models influence the willingness and ability of providers to adopt new innovations.
• Consider Organizational Capacity: Recognize the differences in resources and capabilities between large and small organizations when evaluating their ability to implement new technologies.
• Utilize Comprehensive Data: Leverage data from integrated systems and intermediaries to gain a broader understanding of patient care and to identify opportunities for improvement.

By keeping these factors in mind, stakeholders can better navigate the complexities of healthcare provider incentives, innovation adoption, and data utilization.