The Question of Healthcare

by: Erika Snoberger-Balm, BBA '01


As part of the 2015 Baylor Leadership+Innovation Summit at the Paul L. Foster Campus for Business and Innovation, then Baylor Executive Vice President and Provost Ed Trevathan moderated a forum about the complexities and challenges facing the American healthcare system. Baylor Scott & White Health CEO Joel Allison, BA '70; HCA President (American Group) Jon Foster, BBA '84; and Methodist Health System Executive Vice President Laura Irvine, BA '94, served as panelists. Trevathan, a celebrated pediatric neurologist with degrees from Lipscomb University, Rollins School of Public Health at Emory University and Emory School of Medicine, called this an exciting time to be in healthcare leadership. "The challenges and the questions facing leaders really are quite difficult," Trevathan said in opening the forum. "Many of them don't have straightforward answers, but listening to our leaders here speak and think today will give us some insights that may be new to many of us."

What do you believe are the forces behind the trend of health system mergers, and can we expect this trend to continue?

Irvine: While the number of mergers is still higher in 2015 than it has been in recent years, it's started to plateau. The causes for mergers is, I think, driven by systems wanting to work together, align across geographies and help bring the infrastructure...that can be harder for smaller systems to do on their own. You need a lot of information technology infrastructure, sharing and alignment across multiple types of providers, and multiple systems will find themselves unable to provide that. But I think what will continue in addition to mergers is more alignment across geographies. It is a productive financial way to share quality data and to connect in resources without going through asset purchase and facility situations.

Foster: There are roughly 5,000 hospitals in the U.S. I read a study not long ago that said fully one-third of those lose money. Another third of those break even, and the other third are on solid financial footing. When you add that sort of financial complexity on top of the fact that hospitals operate within a highly regulated environment that's very capital-intensive and very human-resource-intensive, the stakes are far higher than they have ever been in the past. You have health insurance consolidation that's applying pressure and a lot of different competitive forces that are causing a situation in the hospital sector today--one of haves and have-nots.

Allison: The Affordable Care Act when it was passed obviously began the discussion around, "Where do you go?" And then the mergers and transactions began to occur. Last year there were 100 such mergers and acquisitions, which was the highest in several years. We've seen some hospitals go out looking for a partner because they don't have the capital to invest in the new technology, the new science to attract the type of medical talent you need. There's going to be a lot of hospitals that will go out of business. We've seen it today, and if they can't find a partner in some fashion, they're going to struggle.

Rural-area health systems face a unique question of survival. What can be done to strengthen rural healthcare?

Allison: They've got to change the model. Unfortunately, not every community can have a full-service hospital. How do you redesign it? You look at having some clinics, an emergency room...and now that we have telemedicine and telehealth, there are a lot of ways to connect so that you can offer care in rural communities. What we all have to do is look at the needs of those communities.

They can align, and I'm encouraged by the opportunities. If they can work with a large network and have some connectivity working with physicians and telemedicine, I think we can preserve some services, emergency services.

Foster: We see around the United States the closing of hospitals in rural markets and it is, I think, a very difficult situation for small communities. Often times, a hospital in a small community is the major employer, and so to think about scaling that back dramatically and having a very different model is very hard for them to do. I think what we're going to see evolve is access to very time-sensitive services, emergency-department services, outpatient services, but a greater concentration of the more specialized services happening in urban markets. There's a quality imperative around that as well. Studies show that low-volume providers of services tend often to not have the same level of quality as higher-volume providers do. And so, that's a tough transition that's going to occur, but I think it will have to.

Irvine: I think the technology that's available to connect rural facilities, shared healthcare data, will give reassurances to patients and providers in those communities on how transitional their care can be as they need to move specialty services toward more urban areas. Placing the right type of access points with the right type of IT intelligence can make it more palatable for some of the rural communities in terms of how they're able to access the care they’re going to need on a regular basis.

What is the future of payment reform and moving from a fee-for-service system into value-based reimbursement?

Foster: I would say that fee-for-service medicine and value-based reimbursement are not necessarily mutually exclusive. You see the blending of the two very dramatically happening right now. More and more of the reimbursement we receive as providers has a connection or some at-risk component for clinical outcomes and service outcomes. Medicare has gone on record and said that for the $600 billion they spend every year, they want to fully see 50 percent of those payments be tied to some sort of value-based formula by 2017. There are going to be a lot of models out there about how providers deal with that. I think it's the right way to go.

It's an accountable position that we need to take with the communities we serve, provided the incentives are what they ought to be. Often times, you see certain structures and certain formulas in certain contracts where it's highly punitive and doesn't create the incentives you really want to see driving the industry. But if Medicare's doing it, clearly more and more private insurance companies and private industry will be doing it.

Allison: As I look back over the years, one of the things I've always felt has been broken in healthcare is the financing of healthcare. I don't think we finance healthcare correctly. That's got to change. We have to get on the other side of this to where the incentive is around keeping people well and healthy, and being recognized for the quality that's delivered as opposed to just waiting until it gets into the acute care setting and it's much more expensive.

The trajectory we've been on is not sustainable to the government, as 10,000 baby boomers per day enter the healthcare system, and that's going to continue for several years. You've got the cost of pharmaceuticals--everything is going up and up, and it cannot continue. It's not sustainable for employers. We need for employers to stay in the insurance programs.

If we don't do that, it's not sustainable for the individual. And so, we've got to find a way to remove the barriers that keep us from going to a value- based payment system and instead be recognized for quality, safety and keeping people well and healthy. If you build incentives that way, I believe you’ll create these new delivery systems that will recognize that.

They're talking bundle payment systems. They're talking about shared savings. Medicare has the shared-savings programs. And now all the commercial entities will follow. We need to be ahead of that, because we're the ones who can really change the reimbursement.

Irvine: For value-based payment, in addition to improving overall health of the population, is receiving the right care at the right time--moving away from volume-based payment. In many cases of chronic healthcare conditions, different points of care don't talk to each other. There isn't the sharing of the records and data. Doctors' offices are closed or access points are closed, so you go into the emergency room. And, you're hitting some of the most expensive ways to utilize healthcare more frequently than you need to. And all of us agreeing on prices with payers and employers and managing that, sharing value payments and potentially risk, helps all providers align and work together to make sure that not only are we improving health, but also we’re helping patients receive care when they should receive it, and in the right location.

Texas is one of the states that has not expanded Medicaid to low-income adults under the Affordable Care Act. With the subsequent absorption of about $5.5 million per year to treat uninsured patients as a result, how does this opposition play out and affect the viability of Texas hospitals and health systems? How does this impact the health of Texans?

Foster: We have roughly 27 million people who live in Texas, roughly 5 million uninsured, or 19 to 20 percent. And that is a very significant burden, certainly on the hospital systems in Texas, but it also creates a scenario where people without insurance tend to forego or defer preventative care. They tend not to be able to afford medications they might need for chronic conditions, and then they forego or delay that. And what ultimately happens is those particular health challenges tend to wash up on the shores of our emergency departments. Of the 5 million uninsured, they tend to seek care in our ERs, and that is certainly not the lowest-cost place to be getting care.

The 5 million uninsured in Texas are largely the working poor who don't make enough to be able to afford private insurance but make too much to qualify for Medicaid, and so they fall in this gap. It definitely affects the health of Texans. It definitely is a cost burden for the providers, and anything that we might be able to do to get more people insured will lessen that burden and hopefully create a system where we can give people better access to care than just the ERs, which really is not the most effective way to do that.

Allison: It's also a hidden tax on employers and the individual. There's no unpaid care. What was interesting when the Affordable Care Act came out, Billy Hamilton, the state economist, did a study and recommended from an economic standpoint overall it was the right thing for Texas to expand Medicaid. It was proven to be the right thing because of our high rate of uninsured and what it would have done for our state, because even under the expansion, undocumented workers are not included. Finding a way to get more people covered is what we've been about because the state refuses to expand Medicaid, so it is a concern. It is a burden. It is something we have to deal with.

Foster: What if you had to run an organization where one out of every three people who came into your business received service for free? That's the situation hospitals have. We may have 20 percent uninsured, but of the ER visits that occur in our ERs across the state, one of every three comes in without resources. And that's a very difficult challenge.

Texas took the lead a number of years ago by enacting certain malpractice reform. Has that reform had a positive or negative effect on the quality of care provided in Texas hospitals, and what may or may not need to be done in the future?

Allison: Tort reform was very helpful, and I appreciate what the legislature did to enact tort reform, because we were literally losing doctors out of Texas. We had facilities losing services. They weren't going to cover trauma because of the high cost. The doctors couldn't afford the malpractice. We were losing trauma surgeons, neurosurgeons, OB, high-risk; it was a very difficult time, and we were losing people. That has changed to where people are coming to Texas because now they can afford the coverage. They can come back and practice and not be constantly threatened by huge, inappropriate lawsuits. I think it's been very positive, and it's something that allowed us to continue to offer some very needed community services.

Foster: We rank 41st out of 50 states in the number of physicians on a per-capita basis. Tort reform has been very helpful. But we still have a physician shortage in this state, and that is largely because we do not have enough postgraduate medical residency slots available to train physicians. We haven't added a medical school in quite a while. We're now adding some medical schools around the state. We need additional residency slots because obviously studies have shown where you train tends to be where you stay.

Tort reform has been great for us, but it's certainly not enough in dealing with, I think, the imbalance that we have across the state in terms of physician supply. The tort reform change was particularly strongly felt in south Texas. We have hospitals in McAllen. We have hospitals in Brownsville, Corpus Christi, El Paso...and those were areas that were already difficult to recruit, and they were also very litigious from a malpractice environment perspective. It's a real challenge that was, I think, alleviated, and we’re seeing much more success there these days. It's been good.

Irvine: It's been most helpful for the safety net, trauma hospitals, neurosurgery, trauma surgery, high-risk OB. Methodist traditionally had been a trauma hospital, a safety-net hospital for decades. In the '90s we almost had to shut down our trauma service because we had neurosurgeons leaving the state, going to Florida. It took years after tort reform passed for newly trained physicians to want to come to Texas and work, and where probably the last seven to 10 years have really helped resupply many needed specialties in Texas.

Joint ventures and other collaborative partnerships have become increasingly common during the past several years among both for-profit and not-for-profit healthcare organizations. What are the forces driving these collaborations, and do you expect we’ll see more in the future?

Allison: The answer is yes. I think the word of the day is "collaboration." As you look at creating networks, new models of care, population health management and the geographical coverage to take care of that population, wherever they may be living, you can joint venture. You can affiliate. You don't have to own everything to provide that full continuum of care.

An example of that is occurring with Baylor Scott & White Health, where we are joint-venturing with Tenet as an investor-owned system; we are taking four of their hospitals and one of ours, and putting together a joint venture to get geographic coverage in order to further our initiative around population health management. Collaboration is key, and so we'll continue to see that. It's a capital preservation and it's speed-to-market in its coverage, and as we get more and more constrained by the need for capital and the appetite... these collaborative efforts, look for more of them, I believe, to occur.

Foster: Couldn't agree more. HCA was one of the leaders over 20 years ago in establishing the very first hospital joint ventures in Austin with St. David's, and in San Antonio with the Methodist Health Care System. That was something that was born out of a lot of turmoil in the marketplace at that time. I think we see that same turmoil today. I think what we see across the United States is a whole lot more of that activity around what we call the periphery, the tangential services and not necessarily the core hospital services. I would say there has never been a time in recent history for HCA that we have had a more full pipeline of suitors and opportunities to look at joint ventures and to look at different arrangements with different players around the United States.


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