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Trustees of Nonprofit Health Care Organizations: Whom Do They Serve?

Trustees of Nonprofit Health Care Organizations: Whom Do They Serve? Should trustees, including those serving on boards of nonprofit hospitals, physician organizations, and nonprofit health care organizations, consider every opportunity to transition from fee-for-service reimbursement to population health management and accept financial risk related to possible decreases in the volume of care patients seek at their institutions? For the purposes of this Viewpoint, population health management is a set of activities focused on a defined population that improves quality and outcomes while lowering the total costs of care and is substantially incentivized through contracts that accept financial risk and gain. From 2013 to 2014, health care expenditures increased 5.3%, substantially above the rate of inflation, and equaled 17.5% of all goods and services produced in the United States.1 Fee-for-service reimbursement results in cost increases by encouraging patient use of medical services. The majority of trustees appreciate that the revenue from fee-for-service is essential to keeping their institution financially sustainable. Rather than rewarding use of services, most physicians, other health professionals, and health care organizations involved in population health management are incentivized to collaborate and create value by providing efficient, high-quality patient care, implementing preventive services, and decreasing unnecessary use of services. For trustees, switching to population health management creates substantial financial uncertainty due to accepting risk for possible decreases in the use of services by patients. However, population health management also offers trustees the opportunity to support better care of patients at a lower cost and thus better fulfill their responsibility to the patients they serve and the community they represent. Fee-for-service reimbursement for expensive tests and procedures (eg, magnetic resonance imaging, orthopedic surgery) provides capital for the nonprofit institution to start new programs, subsidize poorly reimbursed services (eg, mental health), build new facilities, and market services to increase volume. The overall volume of services provides financial stability to the institution and enables it to provide uncompensated care and community benefits (eg, free flu shots) and support teaching and research at academic medical centers, which is often an important part of trustees’ agendas. Generations of physicians and managers have been trained and worked in a fee-for-service culture. This culture gives substantial status to specialists who perform procedures using high-tech equipment. The reward for volume is sufficient to encourage many physicians to see more patients per session, which can erode a sense of professionalism.2 Volume incentives not only influence strategic investments (eg, adding inpatient beds), but routine decisions. For example, should the organization’s focus be on directed-revenue enhancement or palliative care? The priority is often defined by whether the reimbursement is fee-for-service or population health management. Under fee-for-service, most physicians, hospitals, and health systems act as an autonomous financial unit economically independent from other physicians and health care organizations except through referrals that generate fee-for-service revenue. For example, use of the most costly hip implants by an orthopedic surgeon increases the cost of the service for those who pay for care, but does not generally affect the salary of other staff physicians. However, under population health management, total medical expenditures generally draw from a single budget that is the source of funds for physician compensation and hospital revenue, and reflects the cost of all related medical services. Being at financial risk encourages protocols based on appropriate use that coordinate inpatient and outpatient services using metrics based on patient outcomes. Fee-for-service is grounded in autonomous, silo-like decision making that maximizes well-reimbursed services, whereas population health management may effectively implement financial interdependency between all clinicians caring for the patient with a common goal to maximize value. This interdependency has the potential to drive collaboration if all those providing care can integrate and feel reasonably compensated, or to generate a contentious struggle between, for example, physicians and hospitals if each tries to maximize their share of the overall budget. Nonprofit boards of trustees oversee approximately 4000 of the 5000 US hospitals and also provide oversight for many nonprofit health-related organizations. The trustees approve the budget, oversee quality, and appoint the CEO. For nonprofit organizations, trustees are selected by the current board members and are volunteers typically drawn from community business leaders, lawyers, and senior physicians. The trustees accept a fiduciary responsibility to oversee a social contract between the health care organization, the licensed professional staff, and the broader community. Although how the trustees define the broader community varies from hospital to hospital, this contract gives the medical staff considerable professional autonomy and the nonprofit hospital a tax-exempt status. In return, the community expects ethical, sustainable, high-quality health care at a reasonable cost.3 Trustees often become quickly immersed in the fee-for-service culture. Most board meetings include review of fee-for-service metrics, particularly regarding the volume of admissions, outpatient visits, ancillary services, and their effect on the annual operating margin. Many hospitals function with a burden of debt, a vulnerable credit rating, and a minimal operating margin. Trustees may not want to invest in the operating infrastructure (care coordinators, information technology systems, etc) needed to make population health management successful if it results in reducing volume-generated revenue that is essential to sustainability under fee-for-service. However, the fee-for-service model is increasingly difficult to justify as consistent with a nonprofit hospital’s mission and values.4 Encouraging volume of services results in overuse and inefficiency. Health care expenditures are a disproportionately high share of all spending on social services. The high cost of health care is linked to lower budgets for education, housing, and public health. Costs, in addition to use of services, will continue to increase with advances in genomics and expensive new medications that are aggressively marketed by for-profit and nonprofit companies and health care systems. Absent a shift to population health management, employers are passing on higher costs to their employees by increasing out-of-pocket deductibles and co-payments, which lowers the level of disposable income of the employees and affects the economy overall. Are some of the many benefits provided by health care services being offset by the high cost and consequences to the community’s social safety net? Should trustees continue to optimize fee-for-service reimbursement for their organization? Or, should trustees prioritize their responsibility to the community and instead look at quality more broadly? If the trustees accept the risk of reimbursement associated with population health management, it will likely decrease the use of services and lower costs for patients. Or, do they reward the management team, which the trustees selected, for growth in volume and revenue or for total medical expenditures? When coordination of care is insufficient as reflected in high-readmission rates, do the trustees urge or mandate investment in programs to reduce unnecessary readmissions? Do they invest in palliative care teams and focus on costly end-of-life care? Do they attempt to track medication adherence, which is of little value under fee-for-service, but potentially meaningful as a population health management quality metric? Do they subsidize mental health services that reduce use of medical services for patients with depression? Do they encourage programs that decrease low-acuity emergency department visits? How should trustees proceed? First, trustees should engage in forthright discussions about their difficult choices. Second, if self-insured for employee health benefits, the trustees should focus on the financial and societal benefits to be gained by using population health management to care for the employees. Third, trustees should prioritize efforts, such as reducing readmissions, that have achieved common ground between fee-for-service and population health management. Fourth, trustees should ask management to present population health management metrics, such as details of total medical expenditures. Fifth, trustees should invest in developing teamwork in primary care, care coordination, and participation in pilot population health management programs. Sixth, trustees should encourage insurers to negotiate on a population health management rather than fee-for-service basis. All of these steps are necessary, but they are still insufficient. The scale of critical investment in personnel and information systems added to the financial risk combine to form a major barrier to accepting financial risk and population health management. Those who pay for care—the government, insurers, and employers—will need to facilitate a prudent and viable path that encourages boards of trustees to replace the incentives and culture of fee-for-service with the values of population health management. Back to top Article Information Corresponding Author: Michael Jellinek, MD, Lahey Health Community Network, 41 Mall Rd, Burlington, MA 01805 (michael.jellinek@lahey.org). Published Online: April 7, 2016. doi:10.1001/jama.2016.1778. Conflict of Interest Disclosures: The author has completed and submitted the ICMJE Form for Disclosure of Potential Conflicts of Interest. Dr Jellinek is the CEO of Lahey Health Community Network. Additional Contributions: I acknowledge the helpful suggestions of Tim Ferris, MD (senior vice president, Population Health Management, Partners HealthCare System, Boston, Massachusetts), Donald Berwick, MD, MPP (senior fellow, Institute for Healthcare Improvement, Cambridge, Massachusetts), Tom Lee, MD (chief medical officer, Press Ganey), David Blumenthal, MD, MPP (president and CEO, Commonwealth Fund, New York, New York), Creagh Milford, DO, MPH (president, Population Health Services, Mercy Health, Cincinnati, Ohio), and Catherine DeAngelis, MD, MPH (professor emerita, distinguished service, Johns Hopkins University School of Medicine, Baltimore, Maryland), on earlier drafts of this article. None of these persons was compensated. References 1. Martin AB, Harman M, Benson J, Catlin A; National Health Expenditure Accounts Team. National health spending in 2014: faster growth driven by coverage expansion and prescription drug spending. http://content.healthaffairs.org/content/early/2015/11/25/hlthaff.2015.1194.full.html. Accessed March 16, 2016. 2. Emanuel EJ. Enhancing professionalism through management. JAMA. 2015;313(18):1799-1800.PubMedGoogle ScholarCrossref 3. Jennings B, Gray B, Sharpe VA, Weiss L, Fleischman AR. Ethics and trusteeship for health care: hospital board service in turbulent times. http://www.thehastingscenter.org/uploadedfiles/publications/special_reports/ethics_and_trusteeship_for_health_care.pdf. Accessed March 16, 2016. 4. Margolis JD. Professionalism, fiduciary duty, and health-related business leadership. JAMA. 2015;313(18):1819-1820.PubMedGoogle ScholarCrossref http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png JAMA American Medical Association

Trustees of Nonprofit Health Care Organizations: Whom Do They Serve?

JAMA , Volume 315 (16) – Apr 26, 2016

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Publisher
American Medical Association
Copyright
Copyright © 2016 American Medical Association. All Rights Reserved.
ISSN
0098-7484
eISSN
1538-3598
DOI
10.1001/jama.2016.1778
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Abstract

Should trustees, including those serving on boards of nonprofit hospitals, physician organizations, and nonprofit health care organizations, consider every opportunity to transition from fee-for-service reimbursement to population health management and accept financial risk related to possible decreases in the volume of care patients seek at their institutions? For the purposes of this Viewpoint, population health management is a set of activities focused on a defined population that improves quality and outcomes while lowering the total costs of care and is substantially incentivized through contracts that accept financial risk and gain. From 2013 to 2014, health care expenditures increased 5.3%, substantially above the rate of inflation, and equaled 17.5% of all goods and services produced in the United States.1 Fee-for-service reimbursement results in cost increases by encouraging patient use of medical services. The majority of trustees appreciate that the revenue from fee-for-service is essential to keeping their institution financially sustainable. Rather than rewarding use of services, most physicians, other health professionals, and health care organizations involved in population health management are incentivized to collaborate and create value by providing efficient, high-quality patient care, implementing preventive services, and decreasing unnecessary use of services. For trustees, switching to population health management creates substantial financial uncertainty due to accepting risk for possible decreases in the use of services by patients. However, population health management also offers trustees the opportunity to support better care of patients at a lower cost and thus better fulfill their responsibility to the patients they serve and the community they represent. Fee-for-service reimbursement for expensive tests and procedures (eg, magnetic resonance imaging, orthopedic surgery) provides capital for the nonprofit institution to start new programs, subsidize poorly reimbursed services (eg, mental health), build new facilities, and market services to increase volume. The overall volume of services provides financial stability to the institution and enables it to provide uncompensated care and community benefits (eg, free flu shots) and support teaching and research at academic medical centers, which is often an important part of trustees’ agendas. Generations of physicians and managers have been trained and worked in a fee-for-service culture. This culture gives substantial status to specialists who perform procedures using high-tech equipment. The reward for volume is sufficient to encourage many physicians to see more patients per session, which can erode a sense of professionalism.2 Volume incentives not only influence strategic investments (eg, adding inpatient beds), but routine decisions. For example, should the organization’s focus be on directed-revenue enhancement or palliative care? The priority is often defined by whether the reimbursement is fee-for-service or population health management. Under fee-for-service, most physicians, hospitals, and health systems act as an autonomous financial unit economically independent from other physicians and health care organizations except through referrals that generate fee-for-service revenue. For example, use of the most costly hip implants by an orthopedic surgeon increases the cost of the service for those who pay for care, but does not generally affect the salary of other staff physicians. However, under population health management, total medical expenditures generally draw from a single budget that is the source of funds for physician compensation and hospital revenue, and reflects the cost of all related medical services. Being at financial risk encourages protocols based on appropriate use that coordinate inpatient and outpatient services using metrics based on patient outcomes. Fee-for-service is grounded in autonomous, silo-like decision making that maximizes well-reimbursed services, whereas population health management may effectively implement financial interdependency between all clinicians caring for the patient with a common goal to maximize value. This interdependency has the potential to drive collaboration if all those providing care can integrate and feel reasonably compensated, or to generate a contentious struggle between, for example, physicians and hospitals if each tries to maximize their share of the overall budget. Nonprofit boards of trustees oversee approximately 4000 of the 5000 US hospitals and also provide oversight for many nonprofit health-related organizations. The trustees approve the budget, oversee quality, and appoint the CEO. For nonprofit organizations, trustees are selected by the current board members and are volunteers typically drawn from community business leaders, lawyers, and senior physicians. The trustees accept a fiduciary responsibility to oversee a social contract between the health care organization, the licensed professional staff, and the broader community. Although how the trustees define the broader community varies from hospital to hospital, this contract gives the medical staff considerable professional autonomy and the nonprofit hospital a tax-exempt status. In return, the community expects ethical, sustainable, high-quality health care at a reasonable cost.3 Trustees often become quickly immersed in the fee-for-service culture. Most board meetings include review of fee-for-service metrics, particularly regarding the volume of admissions, outpatient visits, ancillary services, and their effect on the annual operating margin. Many hospitals function with a burden of debt, a vulnerable credit rating, and a minimal operating margin. Trustees may not want to invest in the operating infrastructure (care coordinators, information technology systems, etc) needed to make population health management successful if it results in reducing volume-generated revenue that is essential to sustainability under fee-for-service. However, the fee-for-service model is increasingly difficult to justify as consistent with a nonprofit hospital’s mission and values.4 Encouraging volume of services results in overuse and inefficiency. Health care expenditures are a disproportionately high share of all spending on social services. The high cost of health care is linked to lower budgets for education, housing, and public health. Costs, in addition to use of services, will continue to increase with advances in genomics and expensive new medications that are aggressively marketed by for-profit and nonprofit companies and health care systems. Absent a shift to population health management, employers are passing on higher costs to their employees by increasing out-of-pocket deductibles and co-payments, which lowers the level of disposable income of the employees and affects the economy overall. Are some of the many benefits provided by health care services being offset by the high cost and consequences to the community’s social safety net? Should trustees continue to optimize fee-for-service reimbursement for their organization? Or, should trustees prioritize their responsibility to the community and instead look at quality more broadly? If the trustees accept the risk of reimbursement associated with population health management, it will likely decrease the use of services and lower costs for patients. Or, do they reward the management team, which the trustees selected, for growth in volume and revenue or for total medical expenditures? When coordination of care is insufficient as reflected in high-readmission rates, do the trustees urge or mandate investment in programs to reduce unnecessary readmissions? Do they invest in palliative care teams and focus on costly end-of-life care? Do they attempt to track medication adherence, which is of little value under fee-for-service, but potentially meaningful as a population health management quality metric? Do they subsidize mental health services that reduce use of medical services for patients with depression? Do they encourage programs that decrease low-acuity emergency department visits? How should trustees proceed? First, trustees should engage in forthright discussions about their difficult choices. Second, if self-insured for employee health benefits, the trustees should focus on the financial and societal benefits to be gained by using population health management to care for the employees. Third, trustees should prioritize efforts, such as reducing readmissions, that have achieved common ground between fee-for-service and population health management. Fourth, trustees should ask management to present population health management metrics, such as details of total medical expenditures. Fifth, trustees should invest in developing teamwork in primary care, care coordination, and participation in pilot population health management programs. Sixth, trustees should encourage insurers to negotiate on a population health management rather than fee-for-service basis. All of these steps are necessary, but they are still insufficient. The scale of critical investment in personnel and information systems added to the financial risk combine to form a major barrier to accepting financial risk and population health management. Those who pay for care—the government, insurers, and employers—will need to facilitate a prudent and viable path that encourages boards of trustees to replace the incentives and culture of fee-for-service with the values of population health management. Back to top Article Information Corresponding Author: Michael Jellinek, MD, Lahey Health Community Network, 41 Mall Rd, Burlington, MA 01805 (michael.jellinek@lahey.org). Published Online: April 7, 2016. doi:10.1001/jama.2016.1778. Conflict of Interest Disclosures: The author has completed and submitted the ICMJE Form for Disclosure of Potential Conflicts of Interest. Dr Jellinek is the CEO of Lahey Health Community Network. Additional Contributions: I acknowledge the helpful suggestions of Tim Ferris, MD (senior vice president, Population Health Management, Partners HealthCare System, Boston, Massachusetts), Donald Berwick, MD, MPP (senior fellow, Institute for Healthcare Improvement, Cambridge, Massachusetts), Tom Lee, MD (chief medical officer, Press Ganey), David Blumenthal, MD, MPP (president and CEO, Commonwealth Fund, New York, New York), Creagh Milford, DO, MPH (president, Population Health Services, Mercy Health, Cincinnati, Ohio), and Catherine DeAngelis, MD, MPH (professor emerita, distinguished service, Johns Hopkins University School of Medicine, Baltimore, Maryland), on earlier drafts of this article. None of these persons was compensated. References 1. Martin AB, Harman M, Benson J, Catlin A; National Health Expenditure Accounts Team. National health spending in 2014: faster growth driven by coverage expansion and prescription drug spending. http://content.healthaffairs.org/content/early/2015/11/25/hlthaff.2015.1194.full.html. Accessed March 16, 2016. 2. Emanuel EJ. Enhancing professionalism through management. JAMA. 2015;313(18):1799-1800.PubMedGoogle ScholarCrossref 3. Jennings B, Gray B, Sharpe VA, Weiss L, Fleischman AR. Ethics and trusteeship for health care: hospital board service in turbulent times. http://www.thehastingscenter.org/uploadedfiles/publications/special_reports/ethics_and_trusteeship_for_health_care.pdf. Accessed March 16, 2016. 4. Margolis JD. Professionalism, fiduciary duty, and health-related business leadership. JAMA. 2015;313(18):1819-1820.PubMedGoogle ScholarCrossref

Journal

JAMAAmerican Medical Association

Published: Apr 26, 2016

Keywords: community health centers,community health services,trustees,fee for service payment plan,reimbursement mechanisms

References