Keeping Patients Out of Hospitals: A Private-Sector Approach to Health Reform

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Hospitalization alone costs $3,000 to $4,000 per day. By aligning incentives, a California practice is thriving, saving money, and keeping people in their homes and community.

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Dr. Jim Dougher climbs into his white SUV, plugs the address of his next patient into the GPS, and he's off. The SUV is well stocked: He has a large Tupperware bin in the back full of bandages and wound cleaning supplies; he has a variation on the old-time doctor's bag with a stethoscope and blood-pressure cuff; and he has a dedicated cellular wifi hotspot and a laptop that can communicate with HealthCare Partner's electronic medical record.

Dougher, a stocky man with short grey hair who has lived in Southern California his entire life, is visiting Lavonne Halford, 82, in the Torrance ranch house where she has lived for 55 years. The living room is dominated by Halford's hospital bed, but the walls are decorated with images and statues of Jesus and a large number of collectible stuffed animals. Halford is proud of her home, and makes sure visitors check out the bathroom renovation she recently supervised.

Halford had a stroke several years ago, and as a consequence is confined to bed. In the first years after her stroke, she was hospitalized seven times with pneumonia, urinary tract infections from the catheter in her bladder, and from congestive heart failure and diabetes. Each hospitalization was distressing, dangerous, and expensive -- $3,000 to $4,000 per day.

Then Dougher began visiting Halford, because Halford has no way of visiting her previous primary care doctor. On this particular visit, Dougher takes her blood pressure, checks the healing pressure ulcers that afflict many bed-bound patients, and does a careful inventory of her medications, checking the bottles and tubes she has against the list of medications in the electronic record. It turns out that her mail-order pharmacy service is sending pills she stopped taking months earlier, so Dougher makes a note to tell Halford's case manager.

More than 40 percent of elderly patients die in the hospital; only 18 to 20 percent of Medicare patients in the HealthCare Partners system die there.

On inspection, Dougher notices a red ulcerated region under Halford's nose where she wears her oxygen prongs at night. Concerned that it might be an early infection, he cultures it with a swab from his bag, labels it by hand, and then shows Halford how to use one of the antibiotic creams she already has to prevent the sore from getting worse while he waits for a definitive diagnosis from the laboratory.

Although Dougher attends to Halford's medical conditions with the studied approach of an experienced clinician, he keeps up an ongoing dialogue with Halford and her son, who visits each afternoon, that allows him to assess the support structures in place to keep Halford safe in the home she loves. Before he leaves, he injects her annual influenza vaccine.

Dougher trained as a family physician and then saw patients in a traditional office setting for 19 years before trading in the exam room for the SUV. His practice had skewed toward elderly patients for years due to a natural affinity, and he had always made house calls -- one or two each week -- as part of his practice, so he jumped at the opportunity to lead HealthCare Partners' home visit program.

Now, instead of 30 to 40 patients per day, Dougher sees six to eight. His team of two physicians and four nurse practitioners have divided the greater Los Angeles area up into districts, and have become the temporary primary care physicians to 700 patients who cannot make it to a doctor. Four trained medical assistants and three social workers support their activities from the central office, coordinating services like infusions, wound care, and skilled nursing, and communicating with the primary care physicians who took care of these patients before they became homebound, and who will resume their care when they are agile again.

What all of Dougher's home-visit patients have in common is that they are members of a Medicare managed care plan that has a full-risk contract with HealthCare Partners. What that means is that Dougher's employer receives a fixed fee each month for each senior citizen enrolled in the plan, equivalent to what Medicare would pay for a similar patient, and is responsible for paying for all of their medical care, from doctors visits to hospitalizations to surgeries.

This payment system creates a remarkable alignment of interests: It is irrelevant that Dougher's home-visit unit would lose massive amounts of money in a traditional fee-for-service system. Dougher's job isn't to see a lot of patients; his job is to take great care of Halford and patients like her so they remain healthy and stay out of the hospital, saving HealthCare Partners thousands of dollars each time a hospitalization is prevented. Everyone wins except for the hospitals that see fewer patients admitted and hence less revenue.

***

Three primary care practices banded together in 1992 to form HealthCare Partners, and the organization has since grown into one of the largest medical practices in the United States, caring for 700,000 patients with 700 employed physicians and an additional 7,500 physicians in California, Florida, and Nevada in contractual relationships. Although it continues to function independently, HealthCare Partners merged with dialysis company DaVita in November 2012.

Across a diverse range of patients, HealthCare Partners has reliably earned an impressive 15 percent profit margin. Performance of this kind will please DaVita's shareholders, but it also represents the kind of market-driven health care reform that is happening without the need for guidance from policy makers in Washington.

Medical providers, local communities, and the public wellness movement. See full coverage

HealthCare Partners' performance stems in large part from two ways it is different from most large healthcare organizations in the United States.

Unlike the majority of hospitals and doctors who are paid a fee for each office visit, surgery, or hospital day the patient uses, HealthCare Partners is paid a flat monthly fee for each Medicare recipient, and is then responsible for providing -- or paying for -- all health services for that patient including hospitalization, surgery, chemotherapy, and annual checkups.

In the 1990s this form of payment -- known as capitation -- got a bad name when some doctors paid this way refused to "authorize" health services so they could keep the payment, and their patients died. But implemented more subtly -- HealthCare Partners does not tie doctors' compensation to their individual financial performance -- capitation can liberate a health care provider from the need to maximize the number of billable visits and allow them to focus on improving the quality of health care in a way that cuts costs.

The other way HealthCare Partners is different from other large health care organizations -- particularly those that receive capitated payments -- is that it doesn't own hospitals. This means that HealthCare Partners can focus relentlessly on controlling hospital costs, which represent approximately half of the company's medical expenses. Over the years, HealthCare Partners has become exceptionally good at this. "I think that ultimately we, as physicians, have the best chance of improving quality and reducing costs," said Dr. Robert Margolis, CEO of HealthCare Partners, "because we have, hopefully, the best interest of our patients as our priority."

***

Years ago, HealthCare Partners identified a set of diseases -- including kidney failure, heart failure, diabetes, asthma, and chronic obstructive pulmonary disease (COPD) -- that lead to a huge portion of their health expenditures. They were also predictable, so that a standardized approach to patient care was likely to improve health and control costs for most patients.

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Adam Wolfberg is an obstetrician specializing in high-risk pregnancies with Boston Maternal-Fetal Medicine and is a clinical instructor at Harvard Medical School. He is the author of Fragile Beginnings.

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