Editor’s note: Health Affairs Founding Editor John Iglehart recently interviewed American Hospital Association CEO Rich Umbdenstock. The wide-ranging conversation, transcribed below, touched on the ongoing health reform debate, the evolving role of hospitals in community health, the effect of the economy on hospital finances, the evolution of integrated medicine, patient safety, workforce concerns, and other issues.

JOHN IGLEHART:   What prompted the American Hospital Association (AHA) and particularly you as its CEO to take a leadership role among the private health interests who voluntarily pledged to do their part to reduce the annual rate of health care spending by 1.5 percent over a decade, a step that would save an estimated $2 trillion or more over that time period?

RICH UMBDENSTOCK:     Prompted by a belief that the 2008 election and its aftermath might well provoke more discussions about reforming health care, the AHA began building its reform framework in early 2006; all along two separable thoughts have been paramount in our conversations with our board.  One, we decided to embrace what is now being called shared responsibility–nobody can or should get a free ride, and that includes hospitals.

Second, we always felt that there were two tracks to reform.  One was what we called the external reform or public policy dependent reform.  The other was internal reform, stepping up activities that are already underway to improve both the delivery of health care and the cost of health care, even if these changes were antithetical to the strict and narrow payment system.

When we were invited into this process by the White House, the emphasis was on what progress could be made now to accelerate system improvements rather than waiting for the enactment of a reform plan.  We put on the table quality and safety improvements that are under way in hospitals, but we want to accelerate them in a way that eliminates complications for patients or activities that lead to unwarranted consumption of more resources–extended stays and other things.  So it was very consistent with that second track that we’ve always seen as our “internal reform” track.

AHA’s Position And The Democrats’ Proposal

IGLEHART:   When you think about the proposal that Senator Baucus has put forward as really kind of a centrist Democratic proposal, in broad strokes how does that differ from the AHA’s position, which the association calls its Health for Life campaign?

UMBDENSTOCK:     First of all, extending coverage to as many people in this country as is possible is consistent with AHA policy.  We’ve called for coverage for all, paid for by all, because we believe that most people pay for care today, directly and indirectly, whether or not they know it.  We’ve discussed many of the delivery system changes that the Baucus bill covers–moving toward payment reform, but demonstrating proof of those concepts before jumping into them.  We do believe we’re going to move toward more of a fixed payment system, whether it’s bundled payments per procedure, or whether it’s something broader on an episode or time basis, or potentially all the way back to where we were in the nineties with capitation.

But we know that the fee-for-service volume-oriented system needs to change, so we’re consistent there.

IGLEHART:   Your Health for Life framework certainly sounds broader than simply caring for people who present with an acute illness or live with a chronic condition.  Am I right about that? 

UMBDENSTOCK:     We believe that whatever reform does, it’s got to result in better health and better health care.  We didn’t build our reform framework around the notion that better health care would automatically lead to better health.  It’s a contributor toward health.

So yes, one of the five elements of reform is prevention and wellness, and today we don’t believe there’s enough of a business case, to be blunt about it, for providers to invest in health and wellness.  It’s not, unfortunately, what we get paid for, and those incentives must be changed. 

Hospitals And The Community’s Health

IGLEHART:   Do hospitals see an enlarged role then, one of  being community-based institutions that should be held accountable for not only their own patients, but for the community’s health?

UMBDENSTOCK:     Yes, that is true and has been for a decade.  We envision a nation of healthy communities where individuals have a chance to reach their highest potential for health, and that our job is to be accountable to communities for helping to improve health, and not just to provide treatment.

Our vision actually steps ahead of the traditional payment incentives that hospitals have been operating under.  And it also envisions a more integrated approach with physicians and other community interests because hospitals can’t improve the health of a population on our own–we need partners.  But, if the question is, should we be trying to diminish the reliance on treatment, then the answer is absolutely yes. Is there any other way to show that we’re on the side of the patient and the community?  No.

Constraining The Growth Of Health Spending

IGLEHART:   Where does the AHA stand on the willingness of its hospital membership to contribute to the administration’s efforts to constrain the growth of health spending? 

UMBDENSTOCK:     The administration has made a number of statements on bending the cost curve through its annual budget proposals and other pronouncements.  In its February budget submission for 2010, the administration called for Medicare savings from hospitals of $38 billion over a decade through bundling payments, reducing hospital readmissions, and promoting the pay-for-performance model.  The $38 billion from hospitals came as part  of the president’s “down payment” on reform, his first 600 or so billion dollars. 

Then there was a second installment of proposed savings, issued by the president on June 13, during a Saturday morning address, which called for extracting an additional $180 or so billion from hospitals from shaving Medicare annual payment updates and very aggressive reductions in disproportionate-share payments that flow to hospitals that treat a large number of people without insurance, with Medicaid and other factors.

So when you combine these figures, the administration proposed that hospitals should contribute $225 billion to $250 billion of a  total of about $950 billion to pay for reform. (The administration has proposed to obtain about half of the $950 billion by slowing the growth of Medicare and Medicaid and half from taxes.)  This amount is untenable, just unacceptable for hospitals that have been hit by the downturn in the economy, which is leading to softer admissions, which is also leading to more  charity care, less access to capital, and so on.  On the revenue-raising side, the AHA agreed to reductions of $155 billion in Medicare and Medicaid payments to help pay for reform through a variety of greater efficiencies in hospital operations but that is linked to an expansion of coverage.  If coverage is not expanded, then the spending cuts shouldn’t occur, because we’re still taking care of the people.

The Economy And Hospitals’ Bottom Line

IGLEHART:   Speaking about the financial circumstances hospitals are facing during this recession, are more hospitals reporting losses? 

UMBDENSTOCK:     More hospitals are reporting losses because of the downturn in the economy.  It has lessened the demand for services, or said differently, people are staying out of the hospital as long as they can.  They are losing benefits, which is causing them to think about that, and those who have benefits are either shouldering more of the financial responsibility or have fewer disposable funds to cover their portion of coverage.  So there’s a real dampening of demand for services.

On the other hand, where there is increasing volume, particularly in safety-net hospitals, there’s also an increase in charity care and bad debt because more people cannot afford to cover the cost of their care.  Having said that, some hospitals have been able to weather this storm, either because they’re diversified across enough communities, or they’ve got a better payer mix between the commercial and the public mix, or because they’re also better endowed or have more reserves.  So they have more ability to control their own agenda and future.  But in general, it has been a very tough time.

Transparency And Accountability

IGLEHART:   What’s your view of the increasing number of calls by government and private payers that hospitals and physicians should face greater accountability and greater transparency by hospitals and physicians and other health care interests?

UMBDENSTOCK:     Actually, we’ve been very supportive over the years of greater transparency and public reporting, and I think we should be credited with taking a leadership role.  Most notably, my predecessor, Dick Davidson, and others were among those who formed the hospital quality alliance–one of the most broadly based groups that promotes public reporting of clinical information, and most recently patient satisfaction information.  On the clinical side it’s both quality measures as well as outcome measures in the form of mortality.  Now we’ve added hospital readmissions as a measure, which starts to move beyond strictly quality into the efficiency realm.

IGLEHART:  Why have hospitals moved so rapidly to accept the public reporting to data that were considered confidential not long ago?

UMBDENSTOCK: Well, there is a financial penalty if a hospital does not report, but I don’t believe that the rapid response is driven by the penalty.  It’s a determination to get better faster, to use the information internally to drive improvement, and to tout these improvements to the community.  All of these data that hospitals report to Medicare are available on the Web site www.hospitalcompare.hhs.gov. 

Patient Safety

IGLEHART:   Over the past decade or so, there has been much greater public interest and concern about patient safey.  What has triggered these expressions? 

UMBDENSTOCK:     I would cite several developments.  The most publicly noted of them is the 1999 study by the Institute of Medicine entitled, To Err is Human. Another development was the increased interest of hospitals–fueled by the digital revolution, to build databases that enabled them to track their internal improvements over their prior track record;  that led to the question of compared to what, so hospitals began to look for benchmarks to measure their performance against competitors. Also, the drive for increased public reporting has figured into the increased focus on patient safety.

Medicare Payment To Hospitals And Physicians

IGLEHART:   Changing the way Medicare pays hospitals and physicians is one of the leading issues propelling reform.  Democrats and Republicans alike are supportive of moving away from the fee-for-service model toward the bundling of payments for episodes of care, and the creation of accountable care organizations and medical homes.  What’s the AHA policy in relation to these proposed payment changes? 

UMBDENSTOCK:     We do believe that the payment system will change and should change, that it’s got to move away from a reward for volume to a reward for quality, and to encourage greater teamwork and integration within the system in order to make it more of a true system, and to align the interests not only of the provider groups, but of the provider entity itself and the patient.

We have a task force on payment reform that’s at work right now, just starting its first review of a draft report that will make its way through our policy structure this fall.  And basically it doesn’t argue whether or not that’s the direction in which we’re headed.  What it examines is how we build the bridges to get from here to there.  And how can we figure out how it’s going to work in different communities because different communities are more or less integrated than one another already, and certainly the vast majority of communities are less integrated.

So yes, one can envision how the integrated entities that you hear about today, systems such as Kaiser or Geisinger or as President Obama mentioned, Intermountain Healthcare, can make these changes.  They are fine organizations way down that health care integration path.  Most of America is not down that integration path.  And so the question is how will we help accomplish the objectives of a fixed payment system and shared risk and responsibility with the reality that the fundamental framework isn’t there yet?

Drivers Of Integrated Medicine

IGLEHART:   Having been the CEO of a hospital system based in Spokane, WA, and now at the national level, is the movement to greater integration driven by national policy or community efforts?  Obviously, it’s a combination of things, but what’s the major one?

UMBDENSTOCK:     I think that the more immediate driver is the condition present within different markets. More physicians coming out of residency programs are interested in being part of a larger enterprise, want less to do with the “business of medicine” and more time to practice medicine.  So we’re seeing that happen almost generationally, organically, and not because of any particular government policy or reform discussion.

IGLEHART:   Are most of these new doctors seeking employment in hospitals or just practicing privileges? 

UMBDENSTOCK:     Communities vary, but many new doctors are seeing economies of time and other resources working within a given hospital system or a large medical group, and being employed by such enterprises is looked on more favorably than in earlier times.  Beyond individual doctors, the economic downturn and the lack of access to capital are pushing more provider organizations–hospitals, postacute care entities, large physician groups–-to think about working together in a more integrated fashion.

The movement to a common medical record has provided impetus in a given geography to cover as many people as possible, and that, too, is driving integration.  And I think the specter of national policy that says we want a more integrated, a more risk-bearing system is always in the background.  But the immediate thing right now seems to be the day in and day out, month in and month out pressures that are on everybody locally, where people are saying there’s got to be a better way.  Plus there’s now a track record of greater integration across the country that President Obama has touted and others are looking to—the Cleveland Clinic Foundation, Geisinger Health System, Intermountain Healthsystem, Kaiser Foundation Hospitals, Mayo Clinic, and others.

IGLEHART:   Will a greater emphasis on teamwork flourish under greater integration?

UMBDENSTOCK:     That’s the whole logic.  Integration is a fancy word, I think, for everybody playing a role in a larger system, in a way that coordinates both resource deployment and service delivery.  So yes, I think you’ll see greater teamwork within and across clinical disciplines; ideally the medical and nursing schools and clinical practicums will promote that, but also you’ll see it organizationally and rewarded within organizations because of the potential for both greater coordination and greater resource efficiency.

I thought that Kaiser’s David Lawrence said it best, and I’ve never forgotten this.  Speaking to a group of administrators of academic medical centers, David said that the important thing to think about relative to the role of physicians–particularly if they are in short supply–is that doctors should be used at the point of clinical ambiguity.  His point was that a lot of the medical care now provided by physicians–particularly primary care doctors–can be done by others very well.  Physicians often are rewarded today for doing routine tests and procedures and not as much for counseling and coordinating patient care,and that’s unfortunate.

In an integrated system, especially one that operates on a fixed amount of money, that paradigm is turned around.  The tasks of health care professionals–be they doctors, nurses, physician assistants, or others–are deployed in a way that reflects their greatest potential contribution to the patient.

IGLEHART:   Presumably, that would require changes in scope-of-practice laws at the state level.  Is that something that generally hospitals would favor?

UMBDENSTOCK:     Hospitals would favor it just for the simple, direct reason of workforce shortages.  And so we’ve got to make the best use of all available talent.  But I think hospitals will also be encouraged to support that as clinicians coming out training are more and more comfortable working in teams.

From a sample of one, I can relate the experience of one of our four children who is in a residency program now.  I can tell by the way she talks, the respect she has for her teammates that she has the willingness to delegate and  to be part of something larger.  It’s very different from the ironclad traditional statement that “I am the captain of the ship,” which is what I heard during my first three decades in the hospital field.  I noticed that this past decade there was a lot more emphasis among the clinicians on teamwork.  And I think that’s just going to continue to grow.

Relationships Between Hospitals And Physicians

IGLEHART:      Relationships between hospitals and the private physicians with privileges to provide care within them are often not real collegial.  While that is a subject that could fill a book, I am asking about how the emergence of specialty hospitals fits into this picture.  I am thinking about those situations where physicians take some of the most profitable services out of the hospital and are providing them in specialty hospitals in which they have an ownership interest.

UMBDENSTOCK:     Well, the AHA is opposed to this development based first and foremost on the belief that the incentive to self-refer is wrong; it’s not in the best interest of the patient or the community.  When a doctor self-refers a patient to a hospital in which he or she is invested, that is fundamentally the wrong incentive and leads to the wrong behavior; it leads to the incentive for volume, to do more than is necessary; and it leads to the incentive to be very selective on your payer mix, taking only those patients with better payment or better prospects for a better outcome.  It leaves the hospital then with all of the remaining problems, which is the second reason that we’re against it. It doesn’t further integrate the system of care; it further pulls it apart. And so the full-service community hospitals are left, yes, with the most expensive, least well-paying services and mix of patients.  But most of all it sets up barriers to greater collaboration and greater connectivity across a given community.

IGLEHART:   How much more challenging have your advocacy efforts on this issue been by the fact that some of your members have decided, well, we’re going to fight fire with fire and we’ll create our own specialty hospitals.  Is that a prevalent trend among your hospital members?

UMBDENSTOCK:     This has been one of the more difficult issues for the American Hospital Association to manage through its policy process and its member relations.  Yes, we have in several markets, particularly those that are more open, competitive, and nonregulated, a number of members who have seen the need to partner with physicians or pursue these strategies themselves.

Workforce Issues And Reform

IGLEHART:   I have been struck in the reform dialogue by the almost total lack of focus and discussion about workforce issues.  Is that an issue that should be of greater concern nationally from what you hear from your hospitals about nurses, about particular kinds of physicians, be they primary care or geriatricians or whatever?  What are your thoughts on that?

UMBDENSTOCK:     Yes, I would say that it is and must be a top priority of reform–workforce capacity and the mix of specialties and skill levels are essential if we’re going to be able to fashion a new system.

Unfortunately, I think some of the debate gets a little clouded by are we building workforce capacity and mix for the old model or the new model, and we’re not absolutely clear on that new model.

Again, it could be more use of nurse practitioners and physician assistants in partnership with physicians.  Some could argue that the need is to put all of the emphasis into primary care physicians at the expense of some of the referral specialties.  I don’t think we have that common vision of the new model, and I think as much as anything that’s what is holding us back.  It’s not the need for numbers, it’s not the increasing demand, it’s not the need for the right mix of specialties, but rather it’s the more specific vision for the future delivery model and the complementary and efficient roles within it.

I believe the rate-limiting factor is going to be that from where we are today to where we need to be, we can’t produce enough physicians given the number of residency training positions there are available.  So if nothing else, the time pressures and the economic pressures are going to drive the need for a new model.  That will be very different for many in the physician community. 

Charity Care

IGLEHART:   On the subject of charity care that is rendered by hospitals, what is the status of efforts by hospitals, the Internal Revenue Service, and Sen. Chuck Grassley to develop an agreed-upon definition of charity care and a hospital’s obligation for delivering it in return for the favored tax status of nonprofit facilities?

UMBDENSTOCK:     The introduction by the IRS a year or so ago of the revised Forum 990 will facilitate the most comprehensive collection of these data across nonprofit hospitals that we’ve ever had.  So now is not the time to determine on a more arbitrary basis what a charity care threshold should be.  Let’s figure out exactly what’s going on and what we can learn from these new data before we start to put new rules in effect.

I don’t see a lot of support across any sector for an arbitrary charity care threshold at this point in time, one that’s not informed by a better understanding of and data reflecting what’s currently going on.

Health Reform Versus Hospital Payment Reform

IGLEHART:   My last question really is the inevitable question: What keeps you awake at night, professionally?  Not your children.

UMBDENSTOCK:     What keeps me awake at night? Just a couple of things really.  One is in regard to reform.  Will reform give hospitals new and better tools to serve the community and achieve the goals of better quality and better efficiency, or will reform simply change from health reform to hospital payment reductions?  That’s would be a huge problem, and it would put many of our hospitals that are already on the financial edge, because of either government underpayment and a high government payer mix or the economic downturn, over the financial edge, and that would be harmful to the communities they are trying to serve.

So the difference between true health reform and hospital payment reform is huge, and that keeps me up at night.

The second thing is can we respond to the innumerable expectations that our nation has of our health care system and do it in a way that doesn’t lead people to think or believe that we are operating solely because of the financial incentives?  When things are that difficult and that tight financially, you have to operate more like a business if you want to be open tomorrow, and that’s a point of disconnect because on the one hand we as individual Americans want everything when we need it because we value health care and we value intervention; and on the other hand, those providing that care and managing those resources have difficult choices to make if they want to have the doors open for the largest number in the community tomorrow. That’s a very difficult position to be put in, particularly at the point of clinical decision making, and you can’t manage that way.  You simply can’t manage that way.

IGLEHART:   And with those kind of concerns aside, I assume at this point that the AHA is still strongly in favor of moving forward on reform.

UMBDENSTOCK:     We are, and we want to stay at the table and fashion the best set of changes possible.  We’ll have to fight those changes that we believe will be harmful, but it can be better than it is today.