Hawaii’s He@lthcare Revolution

Vast changes aim to control costs and improve care

September, 2010

Hawaii’s healthcare industry is investing heavily in far-reaching changes that are intended to hold the line on medical costs in the long run.

At the heart of the transformation: Health insurers will pay for quality of care rather than quantity. And quality will be based on good outcomes for patients, plus nationally accepted medical best practices.

“We’re in a period of profound change,” says Chuck Sted, president and CEO of Hawaii Pacific Health, the state’s largest healthcare provider group. “We’re all trying to accomplish the same thing – the highest possible quality healthcare at the most reasonable cost.”

Included in the changes is the expectation that patients will be more involved in monitoring their own health – and may even receive financial incentives such as lower copayments, Sted says.

Powering it all are efficient but expensive new Electronic Medical Records systems expected to help doctors treat conditions faster and better. EMR systems can store, track and compare unprecedented amounts of data; offer instant feedback for physicians and patients; provide automatic health alerts; and automatically check for drug interactions and proper dosages.

While costs to hospitals will rise as systems are established, they’re expected to drop over time as the changes settle in. A top health-insurance executive believes businesses could start to see the annual increases in health-insurance premiums taper off soon – perhaps within three years.

“There are two impacts for businesses,” says Hilton Raethel, HMSA senior vice president. “We believe it will result in healthier members and reduce the rate of increases of premiums. Instead of going up 8, 10, 12 percent annually, we would get them down to single digits.”
As part of Congress and President Obama’s expansion of healthcare insurance this year, greater pressure was put on the country’s insurance plans and health providers to rein in costs. Many are emphasizing principles closer to managed care rather than fee-for-service medicine, plus relying more on less-expensive professionals like nutritionists, nurses and community health workers. Health maintenance organizations – HMOs like Kaiser Permanente – have been doing that for years.

“Over time, measures like this will play into cost containment that faces all the local businesses in providing healthcare for their employees,” says Rick Keene, CFO of The Queen’s Health Systems. “That’s the ultimate objective.”

EMR systems that cover doctors and other healthcare providers statewide could cost as much as $145 million – about $50,000 per provider. Hospitals could shell out another $50 million or more for their systems, according to the Hawaii Health Information Exchange, a nonprofit created in 2006 to coordinate the changes.

So far, only about 10 percent to 20 percent of the state’s physicians have installed EMR systems, said HMSA’s Raethel. But, since 2006, HMSA has provided $50 million to help both providers and hospitals install systems.

Even before HMSA’s efforts, Hawaii Pacific Health, a leader in electronic records, began pouring $54 million into its system. The network is capable of linking HPH’s medical centers – Straub, Kapiolani, Pali Momi, and Wilcox – plus 44 clinics, 1,300 affiliated physicians and 290,000 patients.

“We went through a gradual, measured installation of the Epic system,” says Sted. “It took seven years to complete installation in all of our departments, labs, imaging centers, doctor’s offices. We have approximately 300 employee positions hooked up and in May we hooked up the first 24 physicians not employed by us.”

Hawaii’s changes are just one piece of the nationwide healthcare revolution aimed at improving care while slowing costs, which are rising 7 percent to 10 percent annually.

“We’re already spending 50 percent more than any other developed nation – that’s 16 percent to 17 percent of our GNP on healthcare,” says Raethel. “Other countries are spending 10 percent.” Yet America’s healthcare outcomes are no better than those of nations that spend much less per patient.

HMSA, the state’s largest health insurer, has already signed its first agreement – with Queen’s – on the new reimbursement framework. By 2013, HMSA expects to base 15 percent of reimbursements to hospitals, primary-care physicians and specialists on the quality of care delivered rather than the number of services rendered. The figure has been 2 percent.

“It would be wonderful if we could actually reduce costs, but our goal is to flatten out the cost curve and get the rate of medical inflation at the same rate as general inflation,” says Raethel. “Currently it’s something like three times the rate of the Consumer Price Index.”

Max Botticelli, president and CEO of UHA, one of the state’s smaller health-insurance players, with 33,000 members, says changes at UHA will begin next year and will echo those that HMSA is implementing, with increases going first to primary-care providers. “It’s a very significant change. It needs to happen, but making it happen is a tough job.”

Botticelli says UHA will evaluate care using quality measures developed by The Joint Commission, a nonprofit that accredits 17,000 hospitals and healthcare organizations nationwide. “They’ve come up with a bunch of measurements for hospitals and what we would love to do is just say we’ll let those people measure it and we’ll give hospitals bonuses based on those measurements.”
Nonetheless, Botticelli says, this kind of massive change will take years to accomplish, partly because reimbursements are now tied to a complex system of universal procedural codes. For example, “If someone sews up a laceration, there’s a code for that, and the reimbursement is determined by that,” he says.

Changes could also be slowed by Medicare’s minimal reimbursements. “They are a huge, unfunded liability,” says Botticelli. “Reimbursements are so low that providers tend to shift costs to the private insurers and one way to do that is generate a lot of services. So the real change will occur when the primary source of income (for providers) are the quality measures.”

HMAA, too, is looking to HMSA as the change leader while doing “early-stage due diligence” on reimbursement reforms, says John Henry Felix, chairman and CEO. “This includes evaluating policies that are more aligned with compensation for positive health outcomes rather than straight fee for services,” says Felix in a statement. “Our goal is to keep our members’ costs down while improving their health, and helping ensure a strong provider network is in place.”

“What HMSA is doing is really valuable. … It’s in all of our best interests to do a better job and provide better outcomes,” says John McComas, CEO of AlohaCare, a managed-care health insurer that serves 75,000 patients covered by Quest and Medicare. Quest serves low-income families; Medicare covers seniors.

Historically, McComas says, there has been more of an “adversarial relationship” between health insurers and providers, but the two sides are now moving toward partnerships. For example, AlohaCare is rewarding providers who increase the number of pregnant women coming in for prenatal care. “If you can save one premature delivery a year, you can save half-a-million dollars.”

As HMSA’s contracts with all the hospitals expire over the coming year, the local health-insurance giant expects to enter into new agreements with each – similar to the one signed with Queen’s. HMSA is already negotiating with Hawaii Pacific Health.

Under the new rules, doctors and hospitals will be reimbursed – and could also earn extra money – if patients get better faster or maintain healthier lives. For example, currently, fewer than 10 percent of diabetics, both locally and nationally, consistently receive the eight interventions called for as part of generally accepted best practices. Under HMSA’s new model, physicians would be rewarded for ensuring these patients are treated using those best practices.

“We really believe there are enough dollars in the system now. It’s just how they’re spent,” says Raethel. “The current model rewards hospitals and doctors primarily on volume. It incentivizes quantity over quality. … Very little money is tied to results for that patient.”

In addition to higher upfront costs, such far-reaching changes initially create anxiety and uncertainty for doctors. “When we were first rolling it out they (the physicians) didn’t want to start because they were afraid of the change,” says Dr. Dennis Scheppers, who was a family practitioner in Lihue, Kauai, associated with Wilcox Memorial Hospital when HPH started the changes seven years ago.

“When you first start it, you have to slow down,” says Scheppers, now medical and information director for HPH’s Epic system. “But then time speeds up and with the wealth of information you have with these patients, no one would change it for anything. One hundred percent are embracing it fully. And I don’t think anyone has had a problem with reimbursement.”

Physicians are seeing gains every day, says Scheppers. “Patients are occasionally discovered to have really high blood sugar and they get care right away before they get sick. I’ve seen that happen many times. They go to a routine physical, with their OB maybe, and they do blood tests, and the results pop up immediately with their primary care doctor. Now, instead of waiting for a piece of paper to make it through snail mail, we have results at our fingertips.”

What all of this is going to mean for HMSA’s 680,000 members is collaborating more closely with their primary-care physicians and understanding how to better manage their health, a concept known as the patient-centered medical home. It could also mean greater emphasis on generic drugs and using cheaper tests first, like ultrasound scans, before more expensive ones like MRIs.

“If you’ve done everything you can to take responsibility for your own health, you could see a reduced copay,” says Sted of HPH, which created a Web portal called MyHealthAdvantage, where patients can view their records, and get immediate updates from physicians and automatic health reminders. “It’s very empowering. Patients feel like they’re back in control of their own health.”

With their agreement in effect, HMSA and Queen’s are hammering out measures or metrics to evaluate patient results and determine new financial rewards based on quality. “It will take six to nine months to put into effect,” says Keene of Queen’s.

Keene pointed out the complexity of coming up with measurements. For instance, using patient readmission rates could be a problem, because unless you drill down, it’s unclear why a readmission occurred.
“You want to identify metrics that are clean, that are measurable and very well understood as to what’s driving them,” he says. “Sometimes you can pick a metric and you may look at a result, but it may not tell you the quality of care behind it. You may take a surgical outcome, and the number may vary up or down because of particular circumstances, but that doesn’t mean there’s been any decline or improvement to quality for that patient.…

“Queen’s already has a long history of focusing on high-quality outcomes for its patients,” Keene says. “There isn’t going to be much of a change at all in the way we practice. We already have a lot of metrics we use internally. It’s just a matter of agreeing with HMSA on what to track for the reimbursement model.”

HPH is working out similar agreements with HMSA. “You have to change the stream so instead of being paid for events, you’re paid for outcomes,” Sted says.

Keene says his understanding is that, eventually, HMSA will apply the same model with private physicians.

Kauai’s Scheppers believes the changes will translate into better care. “Instead of waiting for people to get sick and come into the doctor’s office, we’re trying to keep people well so they don’t come into the doctor’s office so often. We’re trying to get the system to take care of people before they get sick. It makes total sense.”


Buzzwords You Should Know

Here are three important concepts in the healthcare revolution:

Evidence-based medicine: Using the best available evidence gained from recent studies and the scientific method to make medical decisions, especially regarding the risks and benefits of certain treatments.

Bundle metrics: Well-established best practices applied to a particular disease, condition or illness. Studies have proven that, on average, patients stay healthier if these measures are followed.

The patient-centered medical home: Healthcare that is a partnership among the primary-care physician, patient and patient’s family to ensure decisions respect the patient’s needs and offer support so the individual can participate in his or her own care.


Big losses in Key Areas

As Hawaii’s fourth-largest industry, healthcare employs about 43,400 people and adds $4.1 billion annually to the Islands’ gross domestic product, according to the Healthcare Association of Hawaii. Yet Hawaii’s hospitals have been taking staggering financial hits over the past decade. According to the association:

• Local hospitals lost $697 million to bad debt and charity care from 2003 to 2008.

• In 2007 alone, Hawaii hospitals spent $185.2 million providing care to Medicare patients for whom they were not reimbursed by government.

• The similar deficit on Medicaid, QUEST and uninsured patients was $48.1 million in 2007.


Going Digital While Trying to Protect Privacy

Christine Sakuda, executive director of the Hawaii Health Information Exchange, hopes that within five years, 75 percent of the state’s 2,900 physicians will have electronic medical records in place.

“If you’re an independent physician and you do everything on your own, then the costs will be higher,” Sakuda says. “That’s why there are efforts around leveraging the costs (with group purchasing).”

Federal incentives to encourage doctors to install EMR systems include:

• $44,000 over five years for eligible Medicare providers;

• $64,000 over six years for eligible providers with 30 percent of their patients on Medicaid.

The nonprofit Health Information Exchange helps physicians pick vendors and install systems. It is also helping develop a state plan so all systems can eventually talk to each other while protecting patient privacy as required by federal law.

“It’s not Big Brother out there trying to get all your patient information and do something evil with it,” Sakuda says. “The value of health information exchange comes from trying to improve the way care is delivered.”


How Reimbursements Will Change

By 2013, HMSA says 15 percent of its reimbursements will be based on quality care, compared with 2 percent now. HMSA’s Hilton Raethel describes how the gradual switch from fee for service to paying for quality care will work:

For the next three years, fees for service will be frozen, she says. Money normally spent on fee increases will go into a fund that will be dispersed to providers and hospitals quarterly based on quality of care.

“Let’s say we normally increase our fees by 5 percent annually,” says Raethel. “We’re going to put that into a ‘bucket’ and the hospital and physician can earn that money depending on how well they do on these quality metrics.

“For example, Hawaii Pacific Health is getting approximately $300 million a year from HMSA. So let’s say there’s $20 million on the table every year (normally for fee increases) but that money goes into the quality bucket, and gets paid out every quarter depending on how well they do.”

• Raethel says HMSA will help providers succeed in the new reimbursement system. “We’re going to do everything we can to help them get these dollars because that means better care for patients.”

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