Monday, March 26, 2012

Healthcare Reform Is Being Debated in the Supreme Court Today

The debate focuses on whether the "Individual Mandate" for healthcare insurance is constitutional or not. This is a critically important day for the US...this debate has implications about constitutionality and federal authority that extend far beyond just healthcare. If I were President of the US, trying to improve healthcare quality and control healthcare expenses for everyone, I would advocate in favor of the Individual Mandate. If I were a judge and constitutional lawyer, I would advocate that Congress had overstepped the bounds of the Constitution-- i.e., Individual Mandate should be overturned at the federal level, and deferred to each state, much like the "other" individual mandate for automobile insurance that is now required in virtually every state. But if Individual Mandate is overturned at the federal level, the state governors better get their act together, quickly, otherwise all of us will suffer under the continuance of a dysfunctional healthcare economic system.

Cayman Collaborative Care Initiative

26 March 2012

To:  Interested Vendors

Dear Colleagues,

The national health system of the Cayman Islands, also known as the Health Services Authority (HSA), is developing a physician compensation model that includes physician productivity and clinical quality as risk variables to total compensation.  The project is known as the Collaborative Care Initiative (CCI). To these ends, the HSA is conducting an options assessment for vendors and products that can meet the reporting requirements to support the CCI metrics for productivity and clinical quality.   HSA defines the overall value of healthcare as follows.   Vendors must be capable of supporting this conceptual definition with their solution.


That is, the overall value of healthcare is greatest when the quality of care is delivered in a cost-effective manner.  Cost and quality are inextricably linked.  In this early iteration of CCI, physician productivity is being used as an inverse proxy for cost of care—highly productive clinicians reduce the overall cost per unit of high quality care produced.

Below are the high level requirements for CCI metrics and reporting.  HSA encourages vendors to suggest additional requirements and functionality to ensure the best overall solution.

1.     Timelines:  HSA will schedule vendor meetings and product demonstrations immediately, on a first-come/first-served basis.  The initial operational date for CCI reporting is July 1, 2012.
2.     Contact Information:  Interested vendors should contact Mr. Keith Higgins, Acting CIO, at, to arrange demonstrations and discussions of their solutions.
3.     Cerner-Centric:  The HSA currently operates a full complement of Cerner Millennium products, operating in Cerner’s Remotely Hosted Option (RHO) in Kansas City.  The vendor’s product must be capable of extracting data from Cerner for purposes of reporting and analysis. 
4.     HSA Hosted Data:  The data extracts from Cerner must reside within the administrative and operational environments of HSA. Therefore, the data must be hosted in the Cayman Islands—either in HSA’s data center or a data center that is currently associated with HSA administration—or in Cerner’s RHO data center in Kansas City.
5.     Adaptable Data Extracts, Model and Content:  At present, Cerner is the primary source of data for clinical quality and physician productivity measures, however, HSA may, in the future, divest itself of the Cerner system.  Therefore, the vendor’s solution must be capable of functioning with very little modification, and minimal additional cost and time if this divestiture occurs.  HSA also utilizes a large number of standalone spreadsheets for tracking various aspects of the care process.  These spreadsheets could be useful in the context of CCI. The vendor’s solution must be capable of including this spreadsheet content by either extracting and integrating the data, or by accommodating the data collection directly in the vendor’s solution.
6.     Reporting Requirements:  The vendor’s solution must support the following reporting environments:
b.     HEDIS
c.     PQRS
d.     Meaningful Use
e.     Pioneer Accountable Care Organization reporting
f.      Patient reported satisfaction with care
7.     Physician Productivity:  HSA believes that there are no perfect models for measuring physician productivity and therefore, compromises in this regard will be necessary.  Vendors are encouraged to suggest new and innovative models.  Traditional measures of physician productivity, especially revenue-based, are not appropriate in HSA’s context.  HSA is a national health system, therefore revenue generated by HSA is realized as an expense to the Ministry of Health and the Cayman Islands National Insurance Company (CINICO).  This tension between revenue vs. expense is the same in US-based direct contract agreements between self-insured employers and healthcare systems—a growing market trend in the US.  RVU-based models are not appropriate within HSA’s environment because the RVU model is CPT-driven, thus rewarding volume of clinical procedures over quality of clinical outcomes.  Furthermore, HSA and CINICO are migrating away from a fee-for-service/CPT-based reimbursement model towards a capitated, fee-for-quality/ICD-based reimbursement model.  At present, HSA believes that the best overall measure of physician productivity is based upon patient access to care, as measured by clinical encounters per unit of physician time worked, including telephone and email encounters.  Future models of productivity may emerge, therefore the vendor’s software solution must be adaptable and agile.
8.     Inpatient and Outpatient Duties:  The measures of quality and productivity must accommodate the physicians’ inpatient and outpatient duties.
9.     Administrative Duties:  The measures of productivity must accommodate the administrative duties associated with physicians’ roles, such as staff meetings and especially those meetings that are associated with care planning and clinical quality initiatives that impact broad issues of patient care, but are not specific to an individual patient.
10.  DRGs:  HSA does not currently utilize DRGs, therefore the vendor’s solution cannot be dependent on DRGs.
11.  References:  The vendor must provide at least three referenced accounts who are using the vendor’s solution in initiatives which are very similar to CCI.
12.  Affordability:   HSA is equivalent in size and scope of services to a rural health system in the US, with similarly modest access to operational and capital funds. The Total Cost of Ownership (hardware, software, labor services) for the vendor’s solution will be evaluated early in this options assessment.  Vendors will be expected to engage in these discussions accordingly and will be quickly eliminated from the procurement, regardless of rich functionality, if their solutions are not affordable within the context of rural healthcare.  If and when a contract is awarded, the contract will be firm-fixed price, with modest annual support fees.  HSA’s total operating budget is $85M per year.  The total bed count is 125.  HSA employs approximately 750 people, of which 40 are physicians.

Thank you and please contact Mr. Higgins if you have any questions or interest in this procurement.

Warm regards,

Dale Sanders
Senior Technology Advisor/CIO Mentor

Friday, March 23, 2012

CIOs, Data and Patient Billing

Below is a Facebook message between a friend and me in which my friend asks for clarification about his hospital bills.

Healthcare CIOs are in a unique position to improve this terrible state of confusion and economic waste that exists in healthcare.  We understand the business and we understand the data of healthcare; and revealing data is the key to changing this dysfunctional situation.


Dear Dale,

Dumb question… I went in for surgery a couple of weeks ago. When it got to the payment part as we checked in they slid a paper in front of us. Without insurance my cost would be $30K, but with insurance my cost was $3.5K total with my portion being 10 percent of that cost. That's nearly 10 times different.

To me, this seems to be one of the major problems with healthcare. Do they really believe that some who can't afford insurance can afford to pay ten times the cost for service? Now there must be a reason and the only thing that I come up with is that unpaid services end up being submitted back and the government helps cover the cost. How far am I off? Why is this the case? Should the cost be the cost?

Dear MS,

Well, first of all, I hope your surgery was minor and you're on the mend, buddy!  Please let me know.

What you experienced is par for the course and one of the main reasons that healthcare is in such a mess. Hospitals have "charges" for patients and they have "reimbursements" from insurance. Your $30K bill represents the hospital's charges, but their charges are not calculated with any sense of sanity. Those charges are arbitrarily established, usually by simply marking-up federal Medicare/Medicaid reimbursement rates by 300% - 500%.  In the rest of the business world, like Apple for example, products are priced according to "Cost of Production + Margin".    The goal is to minimize the cost of production and establish a margin that is reasonable for the market, meets shareholder goals, and achieves sustainability of the company.  Hospitals have no understanding of their true Cost of Production...they are generally clueless in that regard.  They understand Cost of Operation, but that’s not the same as Cost of Production—that is, how much does it cost for healthcare to produce high quality health, in your case, a successful surgery, or a healthy diabetic or newborn baby? 

Insurance companies would never agree to pay most hospital charges, because those charges are typically and arbitrarily high.  That's why hospital charges to patients include such things as a single acetaminophen pill that costs $6.  Instead, the insurance companies negotiate individual reimbursement contracts with the hospitals. That $30K bill that you received was meaningless from a true business sense—that’s not what the government (Medicare or Medicaid) or the insurance company is going to pay. But those charges are very meaningful to patients who don't have insurance because those patients are held hostage to these arbitrary hospital charges and pricing practices.  If you don't have insurance, you are faced with paying hospitals' charges for your bill, so the non-insured patients are penalized the most.   Keep in mind that 42% of bankruptcies in the US are directly related to healthcare expenses.

Each insurance company negotiates a separate contract with individual, somewhat more reasonable fees for reimbursing healthcare services and $0.25 for a acetaminophen instead of $6. But these individual contracts are incredibly complicated and burdensome to manage, and make it confusing for patients and employers to understand the true cost of care. Imagine if your local grocery store negotiated a separate pricing structure for each customer... and there were no prices on the shelves. At the cash register, you wouldn't know your bill until the clerk scanned the products. The person ahead of you would pay $4 for a gallon of milk, while you might pay $2, and the person behind you would pay $1.50...depending on the contract that you negotiated with the grocery store. It would be incredibly inefficient to manage and confusing to everyone. But that confusion would make it nearly impossible for the customer to understand pricing, so the grocery store would likely take advantage of that confusion to keep prices higher than necessary for everyone. 

The confusion about pricing reinforces a concept that I call "disproportionate balance of knowledge", which means when one party knows a lot more about a situation than another party, the knowledgeable party is in a position to manipulate and take unfair advantage of the other party, and human nature being what it is, that unfair advantage is leveraged the vast majority of time in everything from parenting to real estate; car and plumbing repairs are notorious.  And healthcare is among the worst. But, if you can expose the pricing models-- cost of production and margin-- and you can make these prices transparent to the masses-- think Kayak, Zillow and CarMax-- it starts to balance the knowledge between the parties... and prices naturally come down.  By the way, the overhead cost of managing these bizarre pricing models in healthcare, with arbitrary charges and dozens of custom reimbursement contracts, adds 31% overhead to the cost of care which is at least $200B per year in the US, and that overhead is passed right along to patients and their families.  Thompson-Reuters recently published a report that revealed $36B in unnecessarily high US healthcare fees, directly attributable to hospitals’ variable and arbitrary charge practices.

So there you have it, brother. The mess of charges and reimbursements that we tolerate in healthcare, we would never tolerate in the rest of our lives.  We can't take the status quo any longer and the good news is, I truly believe that we’ve reached a tipping point of major and permanent change.


I might post this on my blog, actually...

Russian Nuclear Subs Prowling Again

This article in the Washington Post describes the increased presence of Russian nuclear-armed submarines off the coast of the US, reflectin...