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Is there Wealth in Wellness for Hospitals and Physicians?

by Scott MacStravic

The “wellness” market is looking increasingly attractive to many hospitals and physicians. This is partly because Medicare’s need to hold down its spending as the number of beneficiaries inevitably and dramatically increases is making the “sickness” market look pretty dismal in prospect. But it is also the case that the wellness market offers a totally different kind of payment system as well as sources.

A recent article [P. Betbeze “Shifting the Payment Stream” Health Leaders Magazine May 2007] describes examples of market opportunities and ways providers have already exploited them. Northwestern Memorial Hospital, Chicago, for example, has created a “Wellness Institute” as an experiment for proactively managing people’s health, as well as proactively preparing for declines in sickness care revenue.

Its program combines capabilities in the key wellness challenges that affect most people: weight, diet, stress, and exercise management. These are the areas where both most consumers and most employers are focusing their concern, as both present and future health and expense challenges. Physicians are moving more into “retail” extras where consumers will pay out-of-pocket for services that insurers rarely cover, particularly “aesthetic” services, with plastic surgery, medical spas, sleep centers, and similar programs addressing “quality of life” issues that consumers are looking for help with.

Neither hospitals nor physicians need look only to consumers as sources of revenue, however. If hospitals and physicians can figure out ways to deliver cost-effective disease management that saves insurers and employers money – and ways to market such services to payers – they can generate profitable revenue at the “wholesale” level, as well as “retail”.

When Family Physicians of Western Colorado, a family physicians group in Grand Junction, CO adopted the Chronic Care Model for its diabetic patients, it was able to kept costs down to $114 per patient per year. And it was getting $120 per patient per year for the program. Unfortunately, it applied the DM program to all its diabetic patients, and less than half were members of the HMO that was the only one paying for it, so it ended up losing over $25,000 a year thereby. It chose to continue the program, however, given the significant benefits it delivers to patients. [P. Mohler & N. Mohler “Improving Chronic Illness Care in a Private Practice” Family Practice Management 12:10 Nov/Dec 2005, 50-56]

Of four diabetes management centers that opened in New York since 1999, in one of the nation’s “capitals” in the increasing incidence and prevalence of this disease, only three survive, and two of these depend largely on charitable donations to do so. [I. Urbina “In the Treatment of Diabetes, Success Often Does Not Pay” New York Times Jan 11, 2006] The combination of finding enough payers who will pay enough, and keeping costs within what they are willing to pay, will necessarily be the biggest challenge for providers that seek to serve the wellness market.

In sickness care, providers have always been “commercially handicapped” by professional/mission commitments to offering nothing but the best quality, hang the expense, together with regulatory and payer insistence on the same. This is not the case in the wellness market, where “normal” market dynamics apply. Payers are looking for positive returns on their wellness investments. Whether this is achieved through top performance at top prices, or adequate performance at affordable prices matters little, as long as ROI is optimized.

With consumers, the wellness market is also normal, at least when consumers are paying the bill themselves. Already the MDVIP organization of roughly 150 physicians in 16 states is doing quite well marketing their $1500-1800/year retainer practices on the basis of VIP = Value In Prevention. Many of its patients end up actually saving money in out-of-pocket sickness care costs, thanks to proactive management of their chronic conditions, as opposed to reactive treatment thereof.

Hospitals, too, have long offered wellness services to the high-end market, in the form of “executive health” or “health vacation” programs. Many of these include up to year-long follow-up health coaching, after a comprehensive assessment and consultation stay of from one day to one week. But these tend to be even more expensive than the MDVIP full-year retainers, so have had limited market penetration so far.

The best wellness market for both hospitals and physicians should be employers. While large numbers of employers are cutting their health benefit investments in order to reduce their operating costs and offer more competitive prices, many large employers, particularly, are moving in the opposite direction, investing in employee wellness to improve their health, and thereby not just cut sickness care costs, but improve employee productivity and overall performance, gaining a competitive advantage not based solely on price.

Because employee wellness programs have been shown to yield from two to five times as much economic benefit (counting both reduced costs and increased revenue), employers are in a position to “gainshare” with providers two to five times as much as can insurers, which only save on reduced sickness care costs. If hospitals and physicians can enable their employer clients to accurately and confidently measure the full benefits of wellness services they offer, these providers should be in a strong position to manage wellness programs that deliver great value and warrant generous payment.

Doing so will require taking a different approach to “quality” – identifying the most “cost-effective” means to promote health, reduce risks, and manage existing chronic conditions. They will have to “customize” both the “treatment” and its costs to the risk-reward potential and reality of particular conditions found in individual patients in light of individual employer clients’ expectations. This will be a major paradigm shift from insisting on professionally-determined standards of quality that apply to all patients. But it will be the only way that wellness can yield the wealth that so many providers will need to survive.


2 Comments »

  Frederick Navarro wrote @ May 24th, 2007 at 1:37 pm

There have been some recent articles stating that 20% of hospital admissions and physician care are the result of patient noncompliance and/or poor adherence to medications and treatment regimes. The health care spending related to this is estimated at 100 billion per year. This reality has to be an incredible disincentive for hospitals to actually do more to improve patient compliance and adherence. Why would they invest in activities that can potentially reduce their revenues by 20%?

Hospitals collect tons of clinical information about patient conditions, but absolutely nothing about patient psychological or behavioral predispositions that could predict how well he or she is likely to comply and adhere. With this added dimension of assessment, hospital clinical staff could know better how to engage and persuade patients to be more compliant, and discharge staff would know better who to follow-up with. As I said, there is a huge disincentive for this to happen. Because “hospital care” ends at discharge and hospitals are not “to blame” for what the patient does after he or she leaves, there is no incentive for them to improve compliance. There is much more incentive for them to make it worse.

  Scott MacStravic wrote @ May 24th, 2007 at 6:02 pm

I agree that hospitals have generally “abandoned” their patients at discharge, rather than doing anything about their compliance with post-discharge care recommendations, taking of prescribed medications, etc. — and that it is not in their best financial interests to change. The surprising thing is that there are quite a few hospitals that are exceptions to this rule, some because they do not want to see patients come back when they would be financial losers under Medicare DRG, Medicaid stinginess, or because they are uninsured. But some actually do it because it is part of their health mission, and some because they can make money at it under special pay-for-performance schemes. Only when it becomes financially sounder for hospitals to engage in full disease management, health promotion and risk reduction does it seem likely that these will become widespread investments on their part, and continuous health management rather than episodic sickness treatment become the rule rather than the exception. But there are some signs that payers are making this more possible in the future than in the past.

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