Patient-Centered Supply Chain

In thinking about interesting health care finance topics, the article here caught my attention.   The article discusses the concept of building a so-called "patient-centered supply chain."  The key is to understand what the incentives are, when the incentives push toward this type of arrangement, and how it can help a hospital or health care system particularly as the incentives for achieving better patient outcomes (and not simply providing care for the patient) are made stronger.

The most important thing to recognize is that, in theory, there may always have been incentives pushing this direction.  Specifically, one might ask "why wouldn't an organization want to set up a supply chain that reflects a focus on optimizing the outcomes of patients?"

There has always been a tradeoff between making sure that there is always an abundance of resources at hand for any patient anywhere in the system at any time (which has particularly high costs for inventory that is being held) and the idea of getting the right resources to specific patients just in time--while not being late.  That will lead to lower costs of holding inventory but it takes an investment to set up the information system and change the business practices that will drive the patient-centered supply chain.

Information systems can become more interlinked so that hospitals can link patient conditions and patient care to inventory systems that control where their supply is held and the companies that supply them.  Analytics can be used to predict and anticipate the resources that are needed to care for patients with specific conditions.  Inventory can be held in central locations that can then be sent to the patient care locations on an as needed basis.  As systems grow larger there is a greater opportunity to set up this type of system with centralized inventory control and distribution across the system.

A business must make a decision on the basis of the costs of the information system, the costs o the analytics, the costs of the changing business practices (how supplies are moved) against the savings from reduced holding costs of inventory and the potential savings from improved patient outcomes.  As health care financing changes to focus more on incentivizing the achievement of improved patient outcomes, there will be a stronger and strong incentive to adopt new practices.  

Observation Status

This morning, I heard an interesting piece on Morning Edition on NPR about hospitals using "observation status" rather than admitting individuals as inpatients (the story can be found here: http://www.npr.org/player/v2/mediaPlayer.html?action=1&t=1&islist=false&id=218633011&m=218811152).  I listened with interest and thought about unintended consequences--the heart of so much of the study of health economics.

The key message here is that the government (the Center for Medicare and Medicaid Services, abbreviated CMS) has a program in which it reviews old hospital admissions (up to three years back) and determines whether the patient should have been an inpatient or outpatient.  If the patient was admitted as an inpatient and should have been (based on the CMS standards) an outpatient, then the hospital will have to repay the reimbursement it received and will likely get nothing back (according to the story).

Holding a patient in observational status (which we would generally expect would be just for a day or less, perhaps two days) avoids the determination of whether the patient needs inpatient care.  Some patients have been held in observation for even longer.  If their care is essentially inpatient and they recover, they can then be sent someplace else.  So far, if they do not need the full inpatient care this would seem to be good for CMS, good for taxpayers, and good even for the patient to the degree that the patient has copayments for which she is responsible.

The hang up (and the unintended consequence is this).  Patients are only eligible for Medicare to pay for nursing home services if they are discharged from an inpatient setting.  So, now patients who still need fairly skilled care but who do not need hospital care are not eligible for having the nursing home care covered by Medicare.  Who pays?  The family in most cases.

So, the government implemented a policy to control costs.  This led to a rational response by hospitals to avoid losses.  This leads to a lack of ability to discharge to nursing homes and/or get high quality nursing home care as patients and their families cannot pay for it.  This was not part of the intended cost control but is part of the impact.

The solution--perhaps allow Medicare to cover any rehabilitation-related care regardless of prior location.  But what unintended consequences might this have?  I will leave readers to ponder.