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Connected Health, Reimbursement, and the Law of Unintended Consequences

September 24, 2012

We’re starting to see some funny economics emerge as healthcare payment reform truly takes shape. Just this last week I saw two interesting, unrelated articles that give us a glimpse into the effects of the law of unintended consequences, when it comes to changing the way we pay for healthcare.

The first is from the Kaiser Family Foundation. This article describes the penalties hospitals will have to pay as of October 1 because of changing Medicare regulations related to readmissions.  We’ve known this day was coming for some time, but many hospitals either refused to acknowledge that these penalties were coming or simply had other priorities. For that reason, more than 2,000 hospitals will be penalized and have to pay Medicare back up to 1% of their Medicare revenues.  The KFF article included a link to a PDF file listing all of the hospitals and their 2012 penalties.  A more visually appealing version can be found at, a website created by a new company, Health Recovery Solutions, dedicated to helping hospitals solve this problem.  Find your favorite hospital and see how they stand.

The KFF article points out that some of the nation’s best hospitals (by other measures) are doing the worst here.  That makes sense to me.  In a payment system where Medicare pays hospitals a flat rate per case for inpatient hospital care, an unintended consequence of diagnosis-related group (DRG) reimbursement was to incentivize hospitals to decrease length of stay to improve efficiencies.  By moving patients along and discharging them as quickly as possible, you run the risk that they won’t be quite ready to go.  Up until now, that may have been overlooked because if the patient got readmitted, that started the clock ticking on the DRG-related length of stay again.  But no more.  If these patients are readmitted within 30 days of discharge, the hospital pays a penalty.

About two-thirds of these readmissions are cardiac patients – either heart failure or acute MI.  If you go into any given hospital and ask the cardiologists how to solve this problem, they’ll educate you about left ventricular assist devices, better stents and improved “door to balloon time.”  What is missing from the mix, is improved patient education and improved patient engagement.

Connected health provides both. In our own experience with heart failure telemonitoring,  we noted a 50% drop in readmissions.  We also see more patient self-care and more just-in-time care, resulting in patients staying healthy at home longer.

The Medicare readmission penalties are just the beginning of a whole series of reimbursement changes that will support making care a continuous function in the lives of our patients.  That is what we’ve been doing at the Center for Connected Health for the past 18 years.

General Electric spends more than $2.5 billion per year on employee healthcare costs.  Armed with that fact, no one would be surprised to see the company using whatever levers they can to lower these costs.  The tools du jour are high deductible plans and health savings accounts.

Of course, GE is not the only employer to jump on this band wagon.  In an article in the Wall Street Journal last week, it was noted that GE’s $18 billion medical imaging business is experiencing a slowdown because nationwide, fewer CAT scans and MRIs are being ordered. We can probably attribute this to  consumers experiencing more cost awareness now that they are on high deductible plans! Apparently it’s working.

This is an illustration of a principle that, in today’s US healthcare system, a dollar saved is a dollar of someone’s salary lost.  How to deal with this paradox in a down economy has  caused great consternation for some industry stakeholders.

Shorter hospital stays can lead to higher readmission rates. High deductible employee benefits plans result in fewer high-cost diagnostic testing. Both of these examples illustrate the law of unintended consequences.  As we go through the next several years of change around health care payment reform, more examples are bound to emerge.

What examples can you think of?

10 Comments leave one →
  1. September 25, 2012 12:05 am

    Reblogged this on lava kafle kathmandu nepal.

  2. September 25, 2012 10:59 am

    What a terrific article on the unintended consequences of DRG’s with regards to readmissions and higher deductibles result in fewer diagnostic tests (thus possibly missing disease which caught early could be less expensive down the road). Readmissions are also a result of patient safety concerns…like bed sores…which are caused by a reduction in the numbers of people caring for patients. I like the connected health solution for cardiac patients…along with monitoring it also reassures them and their families.

  3. September 25, 2012 9:38 pm

    Joe, thanks for this post & for mentioning Health Recovery Solutions (a @bphealth company). has proven to be a valuable tool for hospital administrators to estimate the potential amount of the penalty.

  4. David Samuels permalink
    October 10, 2012 9:17 pm

    In 2000, the JCAHO pain management standards are introduced. Hospitals purchase PCA machines and start using smiley and frown faces to assess and treat pain.

    Click to access 474.full.pdf

    In 2002 Ann Lofsky reports on the intersection of Obstructive Sleep Apnea and increased use of parenteral narcotics. She provides an early description of what is now termed “Dead-in-Bed syndrome to the Anesthesiology community. Today, 10 years later, we are still finding an unacceptable number of young patients “Dead-in-Bed”.

  5. David Samuels permalink
    October 10, 2012 9:19 pm

    Sorry, here is the link for the Lofsky article.

  6. David Samuels permalink
    October 10, 2012 9:20 pm

    Lofsky article

  7. October 22, 2012 3:33 pm

    There are so many perverse incentives in healthcare. Thanks for highlighting a number of them. We’re going to go through enormous change and financial pain to reform the healthcare reimbursement system as we know it today.

  8. October 22, 2012 3:49 pm

    Great insight – and critically important to highlight the “unintended” consequences – but I think there are more unintended consequences than what we’re seeing through v1.0 of reform.

    My concern on the readmission problem is threefold:

    1) Hospitals using the “observation” status as a way to avoid the admit (and therefore the readmit) altogether (kind of big hole if you’re only focus is the back door – not the front door too)
    2) The need for most hospitals to run profitably – so being fined for readmission – simply causes escalating prices in other ways (cost-shifting in healthcare is a well honed art – and science)
    3) We’re still not as focused as we need to be on true value – only cost (ok so this one’s larger than just readmission)

    My argument (first observed by many others) – how can we continue to argue about who pays for what – without knowing what’s worth paying for?

  9. October 23, 2012 1:21 pm

    terrific commentary, Dan.

    #1 may happen in some cases, but clogging the ER with folks is not a good business strategy.

    #2 I think the solution to this one is risk bearing or risk sharing arrangements, i.e. flat-rate payments.

    #3 It is right to call out value, but we have so much extra cost that we should be able to trim some things without affecting value

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