Kelley eyes big changes in health care industry

Penn's Health System CEO wants treatment costs to be based on the quality of care. With insurance companies and the federal government cutting back on payments to hospitals while patients continue to demand progressively more expensive types of care, hospitals nationwide are faced with unprecedented budgetary shortfalls and few apparent solutions. But at least one man thinks he has found a way to solve this problem: William Kelley, chief executive officer of the University of Pennsylvania Health System and dean of Penn's Medical School. In a recent interview, Kelley described what he sees as the best way to restructure the way hospitals are paid for providing health care -- basing payment on the quality of treatment rather than simply on the type of treatment. While the idea is still very preliminary and there has been no formal proposal, Kelley's idea would be a huge change for the medical system that controls 20 percent of the Philadelphia health care market. Currently, insurance companies set in advance the amount paid to a doctor or hospital for a given treatment. If the cost of treatment is in excess of the insurance compensation, the hospital is forced to incur a loss. But insurance reimbursements are largely the same no matter who administers the treatment, unlike most industries where expertise and good service usually translate into higher prices. Kelley said it is time the insurance industry did the same -- basing payments on quality, ease of access and patient satisfaction. "We'll turn it right back to the good old standard behavior that we all understand, and that is when it's a higher quality product we might pay a little bit more for that, and if it's a lower quality product, we pay less for that," Kelley said. While the plan may seem like a common-sense approach, experts are more skeptical about the idea. "It's still price that rules," said David Peknay, director of Public Finance at Standard & Poor's Rating Service, emphasizing that patients, like most consumers, are often steered toward a health care choice based on its price. "It's a great idea in theory but I'm not certain how that's going to be pulled off," he said. Peknay said that this idea is not a new one but has never been implemented because of two main problems: How to define quality and how to convince patients that quality should determine price. Quality can mean anything from the number of meals served per day to the rate of in-house infections, Peknay said. He added that patients generally choose their insurance companies based on a lower price, not based on a better quality of service. Additionally, noted Mark Pauly, a Health Care Management professor in the Wharton School, many patients are convinced that every physician is as good as the next because "they are all licensed." Partly because of concerns like that, details are still sketchy about how the 6-year-old, $2 billion University Health System could put such a plan into practice. But at least one trend favors Kelley's proposal. Many insurance companies are moving toward a system known as capitation, where hospitals are paid a monthly, per-patient lump sum in exchange for providing all of a patient's health care. The hospital is responsible for costs in excess of that sum but is also entitled to keep any remaining funds. Kelley's proposal would base the amount of capitation on quality rather than more common measurements, such as average utilization -- the cost of care incurred by patients over the previous year. To compile an overall quality rating, Kelley proposed measuring treatment outcomes, patient satisfaction and access to care. "There wouldn't be any reason to worry about all this documentation," Kelley said, characterizing administrative red tape as the biggest problem in the way health care now works. By cutting out the constant flow of paperwork between the insurer and the hospital, capitation would save millions of dollars per year for providers and the insurance companies. Furthermore, he explained, if a health system didn't meet the quality rating standard, it would be penalized. By contrast, providers would be rewarded for exceeding standards. "It seems logical, doesn't it?" asked Kelley, comparing the plan to buying a car. "You pay more for a Mercedes than you do for a Chevrolet because you want a better car." The plan could be tried first in the Penn Health System, which owns four hospitals outright and is affiliated with 12 more. If successful, Kelley believes the idea would spread, ultimately changing health care on a national level. "That is what will really transform health care in this country and change it from these crazy ways we have to do things today to where we're really doing what the patient wants," he said. Kelley explained that the first step in the restructuring would be finding organizations such as Penn's Health System willing to pilot the experiment. But one aspect of the plan is already in place -- measuring patient satisfaction is a common practice at many hospitals. And UPHS is a national leader in another area of quality assessment, measuring treatment outcomes as part of its Health and Disease Management Program. But Pauly said that despite Penn's move to capitated health care, he is not sure that an academic medical center is the best place to pilot this new plan because tertiary care centers are relatively rare and -- unlike hospitals providing primary and secondary care -- have not been forced to compete on the basis of quality and access to health care. "I applaud the Health System for trying to take a leadership role in [the field], but they are not well-positioned to take this role," Pauly said. However, Kelley is still optimistic about the feasibility of his plan, both in Philadelphia and on a national level. "I believe as soon as some pilots have been done to show that it will work, then we'll see a tremendous transformation to that different approach," Kelley said. "And I want us to be the leaders."

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