Breathing more easily

Do you remember this post from 2009, where I praised Children's Hospital Boston for an asthma intervention program that provided advice and assistance to families? The summary:

Using a combination of interventions (e.g., counseling about drug dosages, HEPA filters for vacuum cleaners, rodent control measures), they dramatically reduced the number of asthmatic incidents for the children in several of Boston's neighborhoods. A subsidiary benefit was a huge reduction in the number of emergency room visits.

Well, now comes the business issue, summarized in an excellent article by Cheryl Clark at HealthLeaders Media.

It costs about $2,600 per child, but avoids $3,900 in hospitalization costs over a two-year period, hospital officials say. Elizabeth Woods, MD, who directs the hospital's initiative, says cost analyses point to a 1.46 return on investment. The hospital has papers in press that illuminate its progress.

So, where's the problem?

"That's a saving to society, not to the hospital," Woods says.

So here's a great program, but one whose success could hurt the hospital's bottom line, one that costs money and reduces business.

This, of course, is the argument for bundled payments for chronic illnesses and/or capitated payments for all medical service. In this article, Atul Gawande leaps to that conclusion. And there is something to be said for that.

But the short term business analysis sometimes fails to account for all of the items that inure to the benefit of a hospital for doing "the right thing."

Here's a sample of that broader view, the reduction in ventilator associated pneumonia and other hospital acquired infections in a hospital's intensive care units. As above, the direct result was a reduction in costs to insurance companies, Medicare, and Medicaid, and a commensurate reduction in revenues to the hospital. But, and this is a big but:

On the business front, it has contributed to a reduction in length of stay in our ICUs. We were able to avoid the multi-million dollar capital cost of expanding our ICU capacity. Indeed, we were able to create capacity out of the existing facilities and improve throughput.

Hospitals today often face limitations on their ability to raise capital. Avoiding a new fixed expense like that, while effectively creating capacity, can make business sense even if some short-term revenues are lost.

Also, some hospital costs are variable, not fixed. Some of that $3900 saved at Children's Hospital, for example, is certain to be related to supplies that will no longer need to be purchased. Likewise, some portion of nursing and respiratory therapy resources can either be reassigned to other cases, or if the trend is long-lasting, simply avoided by having fewer staff people over time.

And, of course, as noted by the CHB official, "Some of the losses might be made up by not providing worthless or futile care."

So, before we make the leap to a new payment regime, let's be a bit more complete in our analysis.