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What Are the Arguments That Show That Palliative Care Is Beneficial to Hospitals?
Introduction and Scope of the Problem
The case for financial support by hospitals of palliative care programs is linked to the quality of care provided, the quantity of patients receiving care, and the extent to which services improve care outcomes. Demonstrating value requires skillful alignment of services with organizational priorities. People receiving palliative care are also more likely to receive care from multiple specialists, across settings, and over time. The benefits of well-integrated palliative care services may be diffused, impacting the work of hospitalists or oncologists, for example. Reductions in future costs from avoidance of crises, reduced readmissions, or changes in care plans require analysis with broader time frames than one admission. These analyses do not fit neatly into traditional procedure- or episode-based cost-benefit evaluation and are not necessarily reflected in billing revenue.
Hospitals and affiliated physician practices are currently in a stressful period of transition, straddling traditional fee-for-service payment norms and emerging value-based initiatives. Many of the established fee-for-service norms for evaluating investment are centered on revenue generation potential. Consider the factors that go into evaluating whether to add a new orthopedic surgeon (and associated operating room capacity and nursing services): this decision balances the future value of new case revenue with the investment cost and ongoing operating costs for the new capacity, which is viewed as a profit center. Palliative care fits more closely into the domain of cost centers—areas that are necessary for operations, compliance, or safety, but incur more costs than the direct revenue they generate. Infection control (required, important, but without direct revenue) is an example of a cost center. Not investing in it could result in infrequent but expensive adverse outcomes. Business norms will tend to favor expanding profit centers with identified new revenue and minimizing expenses in cost centers.
Cost savings emerge from patients receiving “the right care, at the right place, and at the right time.” Resource use (such as investment in teams) is evaluated against the expected billing revenue, cost savings, or contributions to other important institutional goals. Because palliative care specializes in nonstandard, complex cases requiring more customized and time-consuming care, billing revenue often only offsets 40% to 70% of direct staff costs. The cost-savings impact of palliative care documented in research studies is real but is diffused through various departmental budgets within the hospital (intensive care unit [ICU] nursing and other ICU bed day costs, laboratory, radiology, and others) that are not specifically tied to palliative care investment. Therefore palliative care programs are more likely to thrive when they explicitly match their resource requests to high-value initiatives that are jointly supported by health system leaders, with associated metrics that demonstrate value. These metrics may include improvement in specific clinical quality measures, better use of scarce resources such as ICU bed days, or improvements in value-based incentives with payers.
As payment shifts toward value-based purchasing, the lines between traditional profit centers and cost centers will shift. This process is unlikely to be quick or easy, but it does create opportunities for palliative care. Therefore it is important that palliative care leaders develop good habits, instincts, and collaborators to help find routes to appropriate funding for high-impact, well-run services. Similar to the clinical and communication skills of palliative care, leaders need to listen and learn to craft options and pathways, appropriately resourced, to improve care.
In the early decades of palliative care growth, programs were often very small, their leaders were recognized as effective clinicians filling an important gap, and funding was provided by an executive or department chair. Sometimes this was a protected special project with earmarked funds from somewhere in someone’s budget. Sometimes funding came from philanthropy or grant funding, or from supplemental funds for educational roles. In 2000, approximately 25% of hospitals with more than 50 beds reported any palliative care services. Fast-forward to a CAPC 2018 Snapshot report and there were 1,831 programs, or 75% of hospitals, with more than 50 beds. In the early 2000s, most of the existing palliative care programs were small, with a penetration rate (consults/admissions) of less than 2% and very few funded staff. By 2018, the median penetration rate (consults/admissions) was 5.3% with a top-quartile range of between 7% and 19%. Staffing was also increasing; in 2018, top-quartile staffing for interdisciplinary teams was at a median of 3.6 full-time equivalent (FTE) positions per 10,000 admissions (approximately 5 FTEs for a 200-bed hospital and 12 FTEs for a 500-bed hospital). These statistics are lagging indicators based on results reported in 2019 for 2018.
The results of these improvements are demonstrated in statistics showing a median of 5.3% of total admissions having a specialty-level palliative care consult, with many programs at or above 10%; this makes sense given the demographics and need for specialty-level care in a hospital. However, the growth in team size means that the annual staff costs not covered by billing revenues often exceed $250,000 and for larger teams exceed $1 million. (For information on how to calculate these staff costs, please see the calculators on the website for the Center to Advance Palliative Care, www.capc.org .) The net cost per patient served is not increasing, but the total support needed is now a more significant number. One of the predictable outcomes of growth and normalization of palliative care within hospitals is that as teams get bigger, funding needs grow, and that funding has to come from somewhere. This puts palliative care into competition with other programs or new initiatives and raises the bar to demonstrate good stewardship of current resources. This may also bring attention to the home of palliative care: as its budget grows and its impact spreads, its original sponsor or home department may not fit anymore. Therefore it is important to develop business planning skills and identify mentors and collaborators to help build stable funding sources and appropriate metrics to justify costs.
Growth also creates management challenges for palliative care programs. When there was a tiny team, it was easier to communicate and manage. More people, more diverse roles, more referrals needing immediate triage, and more collaborating services and teaching roles all create complexity for the team, raising the need for management and administrative skills or roles. This is very important. Programs that demonstrate good stewardship of current resources are more likely to be able to leverage cost-savings estimates or other value propositions into support for growth and wider impact. Consistency of service, team professionalism, and expertise in appropriate billing all matter to show that current resources are well managed, to show that support is justified and necessary to achieve shared goals, and to use as a baseline for additional investment.
The challenge for the next decade includes balancing palliative care’s role in direct patient care (consult services, inpatient units, outpatient services) with the role of palliative care experts in systems’ redesign work, mentoring, and training. When the nonpatient–related care commitments expand incrementally, it is easy for the contribution to be overlooked, because it does not get counted in patient visit volume or result in billable activity. These can be high-value, high-leverage activities. Fig. 62.1 illustrates some of the common domains in which palliative care efforts may be needed and valued. This chapter focuses on the possible approaches to demonstrating value, emphasizing the inpatient consult model.
Background on Hospital Finances and Possible Impact of Population Health Trends
Since the 1980s, most U.S. hospitals have been paid by Medicare through diagnosis-related groups (DRGs). The introduction of DRGs shifted payment from a cost plus profit structure to a case rate structure. Under case rate reimbursement, cases within similar, risk-adjusted classifications are paid at a standardized rate, rather than paying more for longer stays, use of more resources, or as a percentage of charges. Over time, commercial payers adopted similar approaches, and All Patient Refined DRGs (APR-DRGs) were developed to better reflect severity and mortality risk. The diagnostic categorization of the patient determines the reimbursement rate. Thus if other things are equal and a patient has a shorter stay in a lower-intensity bed, the costs to the hospital will be lower, the revenue will be unchanged, and the contribution margin (revenue minus variable costs) will be improved. Of course, these trade-offs will need to also result in neutral or improved quality, or the improvement will be illusory.
For most of the past 35 years, DRG case-based payment methodology has driven inpatient hospital revenue and service priorities. Hospitals had more pricing flexibility for outpatient and clinic-based care. In fact, outpatient facilities (particularly affiliated outpatient surgery centers, testing and diagnostic centers, and cancer care) were profit centers, whereas utilization that drives up inpatient costs (such as admission through the emergency department, use of ICU beds, and delays in discharge) has a direct negative impact on the hospital because no additional revenue is generated. Inpatient revenue is tied directly to case volume; therefore any constraints to case capacity (such as a shortage of ICU beds) also reduce revenue.
All hospitals are not paid through Medicare-based DRGs; a significant amount of care is provided through hospitals with different funding sources such as Veterans Administration (VA) hospitals, public hospitals (a loose description of hospitals funded primarily by county, state, or federal budgets), and critical access hospitals. If a provider is practicing within these settings, it is important to understand more about the revenue and cost drivers in that system to effectively design well-aligned palliative care services. Often, compelling approaches exist and many of the suggestions included in this chapter will apply, but these will need to be crafted with clarity about hospital priorities and realities. It is worth noting that over the past 20 years public hospitals and VA hospitals have been leaders in adoption, training, and robust support of palliative care programs.
Population health as a concept is not new, but it has gained traction recently and creates new opportunities for palliative care program alignment with organizational priorities. The federal HMO Act of 1973 was designed to promote and encourage the development of health maintenance organizations. Various successful HMOs, such as Kaiser Permanente, have operated with a population health focus for 50 years or more. The introduction of Medicare Advantage in 2003 and the approval of the Affordable Care Act in 2010 created opportunities for insurers to broaden their offerings and focus new attention on population health methodologies. This has resulted in more risk-sharing contracts among health systems, employers, and insurers to align incentives for “the right care, in the right place, at the right time.” The measures are based on populations (a group of insured patients) rather than on individual utilization patterns. These approaches are also part of the design of “managed Medicaid” in some states, and accountable care organization (ACO) initiatives. The Value-Based Purchasing (VBP) Program was introduced by Medicare in 2013 and is updated annually. It uses quality measures across four domains to determine incentive payments which are funded from withholds (reductions) to the Medicare DRG payments and represents a shift from pure case rates toward inclusion of outcome measures.
The cumulative effect of these initiatives is that a growing proportion of hospital and health system revenue is impacted by shared-risk contracts or quality measures and consumer satisfaction rankings. This has implications for palliative care. Through an earlier and more proactive focus on the highest-risk and least-standardized patients, crises can be avoided and care can be aligned with patient preferences, potentially shifting patterns of use. Hospitals and health systems have committed leadership resources to identify and accelerate activities that improve results for shared-risk arrangements; palliative care leaders should look for opportunities to participate in design and be proactive in seeking investment from these initiatives.
It is also important to know that physician payment (Part B professional payment) is usually not included in the hospital payment rate. Revenue generated by professional billing goes into different corporations or at least different budget buckets than hospital costs. This adds complexity when trying to fund services out of one entity that impact costs in another.
Examples of key hospital characteristics that vary widely and impact priorities and assumptions important to the planning of palliative care services include (1) payer mix and risk-sharing characteristics, (2) presence or lack of geriatricians and nurses with geriatric training, (3) case mix, (4) bed mix and occupancy rates, (5) status of advance care planning initiatives, (6) presence of an effective inpatient and outpatient pain service, (7) prevalence of primary care medical homes and extent of primary care provider linkages, and (8) financial health of the organization (net income, reserves, funds for investment projects). While palliative care leaders will know some of this in their own system, they will need to work with finance or administrative partners to help with case mix, bed use, payer mix, and other topics. The more palliative care leaders understand about the financial context of the organization, the easier it will be to align the work of the team with the needs and strategies of the hospital. Basic information is also available on free national websites, such as the American Hospital Directory ( https://www.ahd.com ), so some investigating into one’s own hospital data can help the leader ask better questions.
The information in this section is included to provide readers with some appreciation for the history and complexity of hospital finance, to identify points of alignment between business realities and patient care needs, and to help leaders learn to ask good questions and listen well. Working collaboratively with finance and leadership colleagues is much preferable to unilaterally working on a business case. Hospital administrators have access to critical data, and palliative care has insights into actionable patient care improvements that can change the data and lead to improved patient care.
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