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Study: Medical Center Ups the Quality of Care, but May Have Lowered Revenues

By Susannah Crepet, CQ Staff

July 16, 2007 – Virginia Mason Medical Center, based in Seattle, recently improved the quality and cost-effectiveness of treatment for four conditions—uncomplicated lower back pain, migraines, gastroesophageal reflux disease and cardiac arrhythmias—but it may have reduced its revenues as a result, according to a recent study.

At risk of having its specialties excluded from Aetna's high-performance network because their relatively high costs per episode of care, the medical center worked with Aetna and four of its largest Seattle clients, Costco, Nordstrom, Starbucks and the King County government, to reduce costs and improve quality of treatment for the four conditions.

The employers chose the conditions based on costs associated with health benefit spending, absenteeism or workers' compensation, said researchers at the Center for Studying Health System Change (HSC), which conducted the study.

"The good news is that Virginia Mason identified ways to streamline and improve care; the bad news is that the medical center's bottom line may take a significant financial hit as a result," said Hoangmai H. Pham, HSC senior health researcher and lead author of the study, in a press release.

Physicians at the medical center, a 300-bed hospital with ambulatory surgical care centers and outpatient facilities throughout the region, were ordering diagnostic tests, such as magnetic resonance imaging (MRI), more frequently than recommended by guidelines for back pain care, and sometimes ordered redundant testing such as echocardiograms and stress test for cardiac patients, researchers said.

Pay-for-performance favors those diagnostic tests, making them relatively profitable for physicians, while they are expensive and sometimes unnecessary for patients, according to researchers. As a result, reducing the quantity of unnecessary diagnostic tests reduces the costs and increases the efficiency of treatment for some conditions, but it simultaneously diminishes a source of revenue for physicians.

"Most efforts to improve efficiency for a specific medical condition usually reduce the number of services per patient that can be billed, posing financial challenges for providers. These challenges are often magnified by the current fee-for-service payment structure, where some services are highly profitable and others are unprofitable," said HSC President Paul Ginsburg in the release.

Doctors also prescribed excessive numbers of pills for drugs that migraine patients were using only on a trial basis, as well as the most expensive brand-name drug for gastroesophageal reflux disease when less expensive alternatives were available. Virginia Mason was able to address these inefficiencies, but did not share in the resulting pharmacy savings, researchers said.

The medical center was able to identify and largely eradicate costly inefficiencies in part because it had adapted and implemented a version of the Toyota Production System, a business philosophy that facilitates increased communication within an organization, in addition to consumer input, according to researchers.

Aetna and the participating self-insured employers also agreed to pay higher rates for certain unprofitable services to help subsidize Virginia Mason's improved treatments, but Virginia Mason still faces a financial challenge from applying more efficient care practices to patients covered by other insurers, which account for more than 90 percent of the medical center's revenues, according to the release.

The medical center has a large group of salaried physicians who might not be as sensitive to the loss of revenues from profitable services as would be physicians in most practice settings, Pham said.

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