We live and operate in an era of risks, and nowhere is this more true than in the context of healthcare. Providing high quality and efficient hospital services is one of the key challenges facing this country today. Much of the concern over sky rocketing insurance rates is tied to increases in the costs of treatments and procedures historically performed primarily in an acute care setting. Hospitals are squarely within the sights of federal and state efforts to control healthcare costs and much of the discussion in the current fevered debate about healthcare reform is focused on hospitals. From a clinical perspective, hospitals are targets as well. Hospitals have come under significant fire for real or perceived inadequate quality, the inability to adequately monitor medical staff behavior, and for contributing significantly to patient deaths in this country. Some studies suggest that nearly 100,000 patients die each year simply as the result of preventable infections that are acquired in hospitals.
On top of the cost and quality issues that are at the core of what hospitals do, some estimate that the two principal government healthcare programs – Medicare and Medicaid – are governed by more than 200,000 pages of complex, confusing and sometimes counterintuitive laws, regulations, standards and instructions. This is by far the most comprehensive and complex regulatory scheme in the United States. The majority of this regulation is focused on hospitals. On top of it all, hospitals are subject to most of the myriad of other federal, state and local laws that apply to business organizations generally, such as antitrust, employment, environmental, tax and wage & hour laws to name a few. While most of the laws and regulations are well intended, there is no question that regulatory burdens play a significant role in escalating healthcare costs.
So what are the primary compliance risks faced by hospitals? My experience tells me these risks fall into four broad categories: patient care (quality), cost (or expense management), human capital and regulatory compliance. While we will briefly discuss all of these items, the principal focus will be on regulatory compliance matters.
The most significant hurdle facing hospitals is clearly the quality issue. With preventable infections and injuries killing more Americans than HIV, breast cancer and traffic accidents combined, hospitals – and the many independent physicians who order and direct the care in the hospitals – must be focused on improving quality. In addition to the human toll, the failure to improve quality will impact the hospital’s revenue stream as more and more insurance companies and the government move to pay-for-performance standards.
The second major hurdle for hospitals is the cost challenge. Hospitals must find ways to reduce the cost of care, but previous efforts have not been effective in significantly changing the cost curve. Achieving needed cost savings will require new ways of thinking, the application of new approaches to old problems, and relaxation of certain federal and state laws that currently tell providers how they must operate instead of setting outcomes standards. Unfortunately, when people who have never delivered healthcare tell providers how they must operate (nurse staffing ratios, supervision requirements, etc) rather than prescribing expected outcomes, they almost always add cost and constrain the ability of providers to achieve meaningful cost savings. Moreover, pressures to control costs (ensure a profit or sustainable margin for a non-profit) frequently lead to bad decisions.
A third issue for hospitals is burgeoning shortage of health care professionals that will be needed to care for the increasing numbers of elderly patients. Barring some cataclysmic change, the combination of an aging population and fewer doctors, nurses and other providers is going to have a significant impact on the delivery of healthcare. Competition for doctors and nurses will increase and the impact of this demand for professionals is likely to mean that those in rural and poorer areas will lose out.
The final major challenge for healthcare providers is dealing with the plethora of complicated laws and regulations. While understanding the rules poses a challenge, the bigger challenges are the constant changes to the rules and ensuring that employees and physicians follow the rules.
Non-compliance is most frequently the result of the complexity of the rules. For example, one of the industry’s major challenges is the complicated coding and billing requirements. These rules run tens of thousands of pages and are changed so often that it is almost impossible to keep up. CHW has tracked changes for years. For the Medicare program alone, those changes (as reflected in program memorandum or transmittals) have averaged close to 2 per day, every day of the year. This does not count those changes that occur in the coding rules or the fact that moving from ICD-9CM to ICD-10CM over the next 3 years will move us from roughly 30,000 to more than 200,000 codes.
Another significant challenge is physician relationships. Relationships between hospitals and physicians are governed by complicated laws at the state level as well as the even more complicated Stark, anti-kickback and tax laws at the federal level. In addition to the complexity, these laws are frequently counterintuitive as well. For example, senior citizen discounts are ubiquitous in this country, and I have never heard a moral objection to such discounts. However, if these discounts are routinely offered by a successful physician to her elderly Medicare patients, she is probably violating a law that carries criminal penalties. Similarly, a physician who agrees to treat a patient visit as an “office visit” rather than a “routine physical exam” so that his poor patient does not need to pay as much out of her own pocket is guilty of submitting a false claim, a violation that could carry substantial civil or criminal penalties. Another example: who would expect that the fact a hospital uses a local catering company owned by the spouse of a physician’s granddaughter would trigger the application of rules that would prevent the hospital from billing for services ordered by the physician? While clearly well intended, these laws add a great deal of cost to the healthcare delivery system.
Finally, we can never ignore the fact that a major cause of non-compliance is simply bad (sloppy or, less frequently, intentional) behavior by employees. Boards, management and ethics & compliance officers need to get past the notion that they only have good employees. The data suggests that many employees, if given the opportunity and the motive, will do the wrong thing. Three-quarters of college students admit to cheating. Between half and two-thirds of graduate students cheat or believe that cheating is necessary to be successful. Half of resumes contain materially false information – and we could go on and on. Incredibly, I still hear “I would never have suspected Bernie” when it turns out Bernie stole from us. If we haven’t learned by now that the only people who can rip us off are those we trust, we probably are not management material. Succumbing to the temptation to cheat or steal is more likely when you have management that is arbitrary or believes the rules only apply to others, when we have significant weaknesses in our control processes, when we apply unreasonable pressure to meet targets or create targets that also create an incentive to cheat, when we fail to align incentives, or when we fail to recognize that problems outside of work (mortgage problems, spouse job loss, high credit card debt, compulsive gambling) can also cause bad behavior.
