‘A patchwork quilt that is coming unraveled’
Petasnick says federal reforms are needed
The American health care system needs a massive overhaul, according to William Petasnick, president and chief executive officer of Froedtert Memorial Lutheran Hospital in Wauwatosa. That overhaul, Petasnick says, should include the following steps: thorough reform of Medicare; a redesign of private health benefit plans; universal adoption of disease management; significant investments in information technology; creation of new incentives for consumers to stay healthy; and a commitment to measure and report on the quality of medical care.
Until those issues are addressed, America’s health care system is a "patchwork quilt that is coming unraveled," Petasnick says.
Petasnick is widely recognized in the business community for his leadership on health care reform efforts at the state and national levels. He is chair of the Council of Teaching Hospitals, he is a member of the governing council of the American Hospital Association’s section for metropolitan hospitals and he is the state delegate to AHA’s regional policy board.
Petasnick recently discussed the future of Froedtert and state of the health care industry overall in an interview with Small Business Times health care correspondent Julie Sneider. The following are excerpts from that interview:
SBT: How will Froedtert address the loss in government funding from the Medicare and Medicaid programs?
Petasnick: Well, we are going through that process right now. We are looking at a broader issue of a funding shortfall that we are seeing from a combination of a reduction in Medicare funding and a reduction in the state Medicaid program. Those numbers together are in the area of somewhere near $9 million to $12 million. So, we are looking at it from the institutional perspective and some further cost-saving initiatives that we have to deal with. Some are short-term decisions, and others are long-term in nature. It is a work in progress right now.
SBT: Can you give an example of how Froedtert will cut costs over the long term?
Petasnick: Well, six sigma is an approach that looks at overall efficiencies in some key areas. It is a very deliberate approach to reduce variation, and with decreased variation, you save costs. It’s a process improvement opportunity that will improve quality. We have already had a number of projects under way where we can see some significant cost savings that have occurred because we have been able to reduce variation in practice.
SBT: Are all hospitals trying to follow six sigma standards to improve quality?
Petasnick: No. We are one of the few that have decided to do this. We got into this a couple of years ago as part of our overall concern about medical errors. We thought of ourselves as one of the few places nationally, that are using six sigma as a way to reduce medical errors.
We got interested in six sigma because it has been very helpful in terms of reducing the likelihood of errors in the airlines and other industries.
Another area we are looking at is in the whole supply chain management and improvement approach. Health care has been notorious in not standardizing the use of products and appliances. So we are looking more and more at standardization of practices to reduce costs. And we think there are millions of dollars here that can be saved at our institution, let alone when you compare us with others.
SBT: These are things that you would do, regardless of what happens with the state budget?
Petasnick: We would, and again, it’s part of our effort to really control health care costs. That’s a reflection of good stewardship and good management. The intensity of that effort obviously makes it more urgent because of the reductions that are occurring in the public sector. That issue adds to the community’s health care costs, because the under-funding of these programs creates more cost-shifting to the private sector.
As the business community is more and more concerned about rising health care costs in Milwaukee, the under-funding of these public programs becomes a major factor.
SBT: And at the same time, you are serving an aging population, which requires an increasing amount of health care.
Petasnick: Yes, and all these issues are all coming together. I mean, everyone talks about the "Perfect Storm" scenario. But I do believe there are a number of different elements that are occurring at one time. And in my 30-some years of experience in health care, I have frankly never seen so many of these converging forces coming together at the same time. You have aging demographics, the cost of technology, the under-funding of public programs and you have the economic downturn, which means the number of uninsured rises as people lose their jobs and their health care benefits.
All these things seem to be converging at one time. In the past, you might have dealt with one or some of these, but now there is no longer any stability or predictability. All these things coming together at one time is contributing to the feeling on the part of a number of us that are involved on the national scene looking at health care that this system is such a patchwork quilt that is coming unraveled.
SBT: Moving on to hospital finances, recent reports from the state indicated a number of hospitals in our area saw a drop in profits in 2002. A number of reasons were cited, including government reimbursement gaps and a loss in investments. How would you characterize Froedtert’s financial strength?
Petasnick: We have been able to secure an A+ bond rating, and that relates to the fiscal health of the organization, but it is predicated on good financial management and a whole variety of pieces. We are dependent on being able to access the debt market.
Now, last year, we had some additional costs that occurred, some of it related to bringing on new programs and recruiting 100 nurses in 100 days. We had not anticipated being as successful as we were in terms of recruiting people, so we had to recruit people without the revenue stream matching that. That somewhat contributed to our reduction in our profitability last year.
Second, we are seeing the increasing cost of labor just like everyone else, even though we have been successful in recruiting people. Our vacancy rate is about 3 to 3.5 percent. Our nursing turnover has been very low. We have not had to use outside agencies. We have been very successful in terms of people seeking employment and staying with us.
So, that helped moderate some of the cost factors. We also were hit by some of the under-funding of public programs — (Milwaukee County’s) GAMP being one of those – in terms of rising numbers of uninsured, which also came in late year and relates to the state of economy. Our volumes actually were pretty solid last year, and they continue to grow.
SBT: How do things look so far
in 2003?
Petasnick: We are on budget and on target, but our budget did not fully take into account some of these reductions in the state budget.
SBT: Changing topics now, I want to ask you about the national Leapfrog Group. Many business groups around the country are insisting on new measurements of health care quality and how they will determine what constitutes quality. Why did Froedtert decide to participate, as a provider, in The Leapfrog Group’s efforts? And in general, what do you think of the idea of employers measuring and reporting on the quality of health care providers?
Petasnick: Well, again, I think our participation in The Leapfrog Group is part of our view that we want to be a catalyst for change and we want to be a leader. It’s a learning process for us as well. We have some concerns about Leapfrog in terms of its approach, its methodology and its simplicity. But we would rather be a player and try to influence from within as opposed to standing on the sidelines.
We have, with some other well recognized multi-specialty physician group practices in this state, come together and formed the Wisconsin Collaborative on Quality. We want to be proactive.
We feel quality is key, and we have to have a shared universal commitment to the highest quality at the lowest cost. And we also have to have a commitment to public disclosure. So we, along with ThedaCare in the Fox Valley and the Medical College of Wisconsin, helped form the collaborative. We also feel this needs to be physician-driven. Physicians have to embrace this initiative, because hospitals can’t do it alone.
The purpose of the collaborative really was built around a couple of core principles. One is that we would define the elements to measure from a quality perspective. And two, we would work with major companies in the state to help us define what are those quality parameters. So the collaborators include some of the major businesses in the state.
SBT: How does the Wisconsin Collaborative on Quality differ from other quality initiatives?
Petasnick: What is different is that this is not going to be a group of health care providers deciding in isolation what to measure. We are going to the business community to say that we understand that the health care system is moving toward consumer-driven health care, and there is a desire for more consumer information on quality.
We have worked with some of these core industries, asking them to tell us what kind of information would be helpful to them in terms of health care providers’ performance improvement. And then we can benchmark each other in terms of best practices. Ultimately, we want to collect and create this data and have third-party verification, and we want to make it public. It’s information that has to be made available.
SBT: How long before the first report comes out?
Petasnick: We are looking at trying to produce the first report by the end of the year, so it would be some time in October or November. It will be in crude form because it will be the first report. We are looking not so much at hospital data; so many other groups are looking at hospital data. The collaborative will be looking at outpatient care, but a lot of that (information) has to be hand collected. It’s not reportable at this point.
SBT: Will costs per procedure be reported as well?
Petasnick: Yes. We are trying to get at cost per episode of illness. But this is a work in progress.
SBT: Since the theme of this publication is The State of Health Care, how would you describe the current state of health care in southeastern Wisconsin?
Petasnick: We all have to be concerned about the issue of over-capacity (of hospitals and medical services) in this region, and what is responsible growth vs. what is growth for the sake of gaining market share.
As you know, I have been a critic and have been involved nationally in expressing concerns about the growth of so-called ’boutique’ hospitals. … To the extent that when you move out your most lucrative services or those that generate revenues, you put places like this (Froedtert) and other general acute hospitals at risk.
I have yet to find the "boutique indigent care hospital" or the "boutique trauma center hospital."
Whether it is right or wrong, everyone should pay his or her fair share, and the fact is, that is not occurring. So my concern about the growth of boutiques is — and I think we can compete with them on a toe-to-toe basis — it’s the fact that you are not dealing with a level playing field.
That jeopardizes the ability to support those programs that are societal in nature, such as medical teaching programs, high-risk obstetrics and trauma services. There are a lot of health care services provided that are loss-leaders. As private institutions, we need to have a whole array of support to meet our financial requirements that allow us to fulfill our core mission.
SBT: How would you describe the state of the country’s health care system? In your answer, please address the latest efforts in Congress to reform Medicare.
Petasnick: The state of health care is such that it is in flux. Increasingly, there is a view here that the whole issue of health reform needs to come forth in terms of a national agenda. We are not looking for a federal fix, but there are elements of the health care system that need to be fixed and examined. Medicare is a program that is in need of a major overhaul. It’s a program that has existed in terms of 30 years ago, and it’s very different than what we are dealing with now. That’s part of a mosaic that has to be dealt with.
SBT: Do you like the Medicare proposal that has been before Congress this year?
Petasnick: I am very concerned about it, because it is politically driven. It’s not a reform package. And in the end, it will look good politically, but how you administer it and what the full cost of it is really a total unknown. It could divert attention from some really fundamental changes needed to restructure the program.
SBT: Any concerns for Wisconsin, especially the part of the plan that would increase competition among private Medicare insurance plans? That didn’t work here when it was tried in the past.
Petasnick: That gets back to the whole issue of under-funding of Medicare. In terms of Wisconsin, it has been on the short end of federal dollars. The approach to try to create an HMO solution or Medicare Choice did not work here because those plans were under-funded. And nothing has changed with regard to (Wisconsin’s) fair share of Medicare funding.
SBT: And the legislation before Congress now would not change that?
Petasnick: It has nothing to do with the issue of equalization of reimbursement.
Aug. 8, 2003 Small Business Times, Milwaukee
