New Orleans revisited
Hurricane Katrina washed away most of the health care safety net in New Orleans, battered hospitals and drove off many doctors, nurses and skilled caregivers. It also created anopportunity to replace the region’s antiquated health care system.If ever there was a state health care system crying out for reform, it was Louisiana’s, pre-Katrina. Costs were high but outcomes were among the poorest in the nation.
Per capita health care consumption was at or near the top in nearly every category—from inpatient care to prescription drugs. Yet the state ranked 49th or 50th in overall health status for 15 years in United Health Foundation’s annual State Health Rankings.
Medicare costs per beneficiary passed $8,000 in 2001, the highest in the nation. But quality was lowest among all 50 states, as measured by Centers for Medicare & Medicaid Services benchmarks. In 2005, Medicare costs in the last year of life averaged nearly $60,000 in Louisiana compared with about $36,000 nationally.
More than one in five, or about 817,000, Louisiana residents were uninsured. And 90 percent-plus of health care services to these mostly low-income residents were provided through a state-run network of 10 public hospitals and about 350 clinics. Also known as charity hospitals, this relic from the populist Huey Long era served most Medicaid recipients as well, creating an explicitly two-tiered delivery system. Not surprisingly, chronic underfunding of the state network produced long waits for service in antiquated facilities. Patients with Medicare and private insurance, meanwhile, mostly used private hospitals, with far lower occupancy rates.
“There was excess capacity in the private market, but on the public side we had facilities that weren’t in good shape and had more demand than they could handle,” says Frederick P. Cerise, M.D., secretary of the Louisiana Department of Health and Hospitals.
Financing reinforced the problem. While the charity system consumed a disproportionate share of the federal hospital funds and a good chunk of the Medicaid budget, it also insulated private hospitals from the burden of uncompensated care, notes Donald R. Smithburg, executive vice president and CEO of the Louisiana State University Health Care Services Division, which runs the state hospital network. “The private hospitals had a pretty good thing going,” he says.
The situation was far from ideal—and everyone knew it. But the inertia of long-established institutions and practices, financial constraints, and the ingrained habits and expectations of patient populations locked the status quo in place.
“There are so many entrenched behaviors that it is hard to change,” says Patrick Quinlan, M.D., CEO of the Ochsner Clinic, which now operates five acute care hospitals, a surgical hospital, a subacute facility and 25 health centers in southern Louisiana. “A catastrophe makes it easier.”
Catastrophe struck on Aug. 29, 2005, when Hurricane Katrina washed away most of the infrastructure of New Orleans’ health care safety net and drove off much of the population it served—along with many doctors, nurses and other skilled caregivers. In the aftermath, state leaders saw a unique opportunity to reinvent health care delivery. Yet even as disparate parties come together, they find that nothing is easy.
Six months after the storm, Charity Hospital and University Hospital, the two state facilities in town that had operated about 570 beds, were among the six in Orleans Parish that remained closed. Only three hospitals had opened, and these only partially, resulting in an 80 percent reduction in staffed beds. With both its operations and finances disrupted, LSU laid off 90 percent of its New Orleans health system staff by the end of 2005. It would be November 2006, nearly 14 months after the storm, before LSU reopened 84 beds at University Hospital.
However, LSU permanently shuttered Charity Hospital, a highly controversial decision given the dire need for safety-net services. The closure also came amid wildly divergent projections about the cost of restoring the 1930s vintage facility. The Federal Emergency Management Agency estimated that storm damage repairs would come to $23.9 million—less than 10 percent of LSU’s $257 million estimate of what it would take to repair and update the hospital. Instead, LSU decided to build a single new facility to replace both Charity and University Hospital, which dates from 1972. In December, the system won a $320 million commitment from the Louisiana Recovery Authority to begin that project, which will not be completed for years.
Sharing the pain
The impact on private hospitals is severe and ongoing. Touro Infirmary, which staffed 365 beds before the storm and was the first hospital serving adults to reopen in Orleans Parish, lost more than $5 million on operations in the first 10 months of 2006, says President and CEO Les Hirsch. Emergency department visits will top 30,000 this year, up from about 20,000 annually before the storm, and many of these patients are uninsured. “The incremental increase in uncompensated care since ’05 exceeds our total operating loss,” Hirsch says.
Likewise, Tulane University Hospital saw uncompensated care jump as high as 40 percent of patients after it reopened 63 beds in February 2006, says Alan M. Miller, M.D., associate senior vice president for health sciences at Tulane University. Since University reopened, about 12 percent of inpatients at Tulane are uninsured, though rates in the emergency department are much higher.
Ochsner made a major contribution to shore up the sagging public safety net by leasing space in one hospital to LSU to re-establish trauma services. With the trauma unit moving to the reopened University Hospital, Ochsner is restoring full services at the smaller facility, as well as at three other community hospitals it picked up last year from Tenet Healthcare Corp. The clinic also opened its major hospital in Jefferson Parish to indigent patients. “We’re less than a mile from the [Orleans] parish line. I can see downtown from my office,” Quinlan says.
Recognizing the burden that private hospitals were shouldering, the Louisiana state legislature in early 2006 diverted funds formerly dedicated to the state charity system to create a $120 million uncompensated care fund. Medicaid rates also were raised about 4 percent.
The legislature also moved to correct the structural flaws of the state’s health care system by creating the Louisiana Health Care Redesign Collaborative. The group brought together representatives from government, hospitals, patient advocacy groups and business to come up with a better way.
Its explicit charge: “to develop, and oversee the implementation of a practical blueprint for an evidence-based, quality-driven health care system for Louisiana.”
A concept for rebuilding
Despite a history of divergent interests, wrangling and even frank distrust among coalition members—divisions often highlighted in press coverage during the nine months it took to develop a preliminary reform plan—the group functions smoothly, members say. “You might think a group this diverse would have difficulty finding common ground, but they were very polite, engaged and outcome-oriented,” Quinlan says. In October, the coalition presented a concept paper that outlines its consensus plan for rebuilding the state and city health systems.
Broadly, the paper calls for shifting government financing away from a dedicated hospital and clinic system in favor of expanding insurance coverage. Funding would support expanded Medicaid coverage and subsidies for private insurance for low-income workers. In theory, this would improve access and efficiency by giving patients a choice of providers.
The plan also calls for providers to be paid at rates that cover the cost of services. “The idea is that the money will follow the patient instead of the institution,” says John Matessino, president and CEO of the Louisiana Hospital Association. “It creates a level playing field for everyone.”
Of course, extending coverage to thousands of new individuals will be costly. But the plan assumes a major portion of that funding will come through increased efficiency. Each enrollee would have a “medical home,” which is a clinic or system responsible for ensuring patients receive primary care and for coordinating specialty and inpatient care. Specialized medical homes and treatment networks would be established to meet the complex needs of disabled, severely or chronically ill and end-of-life patients.
The idea is that preventing acute illness through effective primary care, basing services on evidence-based protocols and steering terminal patients into coordinated hospice and other appropriate nonhospital settings will both improve population health and ultimately lower overall costs. “There’s likely to be a spike in the short term as newly insured patients seek more care, but it should decline as time goes on,” says Cerise, the state health secretary.
Information technology is another key to improved efficiency. Medical homes and specialty care networks are to be coordinated using interoperable medical record systems. This is supposed to prevent duplication of services and delivery of unnecessary or unproven services, and to ensure that patients receive all the care they need when they need it to manage chronic and acute conditions. Physicians, hospitals and other providers will be required to install interoperable record systems to participate.
A statewide quality forum will be established to monitor outcomes and set standards for evidence-based care. Patients will purchase coverage through an insurance connector, making competitive health plans offered by all insurers available to everyone. “It really provides for much more comprehensive access to health care for the citizens of the state,” Tulane’s Miller says. “Hopefully, it would lead to a lot more of the care being given at the front end in terms of preventive and primary care rather than most care happening after serious illnesses have occurred.”
Ochsner’s Quinlan puts it more bluntly: “This is chapter one in the book of population-based health care. It’s called ‘modern medicine.’ As an integrated hospital system and multispecialty clinic, we’ve been practicing under this model for years.”
Obstacles to reform
But as perfectly rational and equitable as the cooperatives’ plan may be, it must make its way in an imperfect world governed by uncertain financial resources and political processes. Among the challenges New Orleans must address:
• Uncertain demographics: Much of Orleans Parish remains uninhabitable and its population is unlikely to return to its near half-million level, particularly if the area’s levee systems are not upgraded. However, the population in the surrounding parishes is expanding rapidly, and by some accounts is already near pre-storm levels. Also, the wealth of construction jobs has attracted Hispanic and other immigrant groups in numbers never before seen in the area. The ultimate number, location and economic circumstances of this rapidly changing population are major unknowns complicating everything from facility location planning to the magnitude of potential insurance subsidies.
• Health care workforce shortage: Hospital closures, loss of housing and failure of basic services including public schools and police protection forced thousands of nurses, doctors and other health professionals out of the area. With many now established in other communities, getting them back is a challenge. Cerise estimates that there are currently about 450 primary care physicians in the New Orleans area, down from about 1,500 before the storm. Whether existing private physicians have the skill and willingness to implement the managed care-style service coordination required by the medical home model is another open question. Mental health practitioners are in particularly short supply even as the city faces an epidemic of stress-related disabilities. Lack of nursing staff prevents hospitals across the area from opening or expanding beds. Severe nursing shortages have driven annual wage and benefit costs over $120,000 in some cases, partly because hospitals must rely on traveling agency nurses to fill the gaps. Overall, wages are up 22 percent at Touro, Hirsch says. Even unskilled labor is at a premium, with even fast-food outlets raising wages from about $7 per hour to $12, according to the U.S. Government Accountability Office. The state has requested an emergency increase in the Medicare wage index to offset the costs.
• Patient behavior: After decades of relying on emergency rooms for care and with little experience with preventive care, patients in Louisiana will have to learn how to interact with a coordinated, primary care-focused system. This will require a major public education effort. And with little managed care penetration in the market, consumers will be challenged to accept the limits such models are likely to impose.
• Information technology: Interoperable patient records are at the heart of the system’s ability to coordinate care and generate the efficiencies needed to sustain it financially. Hundreds of volunteers from across the country have contributed equipment and expertise to set up electronic systems in clinics opened since the storm, says Scott Wallace, president of the National Alliance of Health Information Technology. But first, the medical home system and specialty networks must be set up, and protocols for delivering care and sharing information established. “Interoperability is three or four steps down the road,” he says. Matessino of the state hospital association has called for a delay in requiring interoperable systems to avoid a setback in rebuilding.
• Funding: Covering an additional half-million or so Louisiana residents will cost more money even if the system can reach optimal efficiency—LSU’s Smithburg estimates a half-billion dollars beyond current levels. And some of the money currently available through Medicare, Medicaid and DSH will have to be shifted to accommodate the medical home model. The state is working with the federal government on waivers that would allow DSH funds to finance insurance subsidies, allow Medicare dollars to fund capitated coordinated care programs for Medicare-Medicaid dual eligibles, and to expand Medicaid eligibility. But the fate of these waivers was uncertain at press time. Even if the fedes agree, the state may not be able to afford its share. As of November 2006, Cerise’s office projected a shortfall reaching $66 million by 2012, even assuming full funding.
These challenges create huge risk. Jumping into an underfund-ed public insurance program could perma- nently saddle private hospitals with huge uncompensated care problems. “If you swap the [hospital-based] safety net for an insurance product that is not appropriately funded so that it is usable, the patients are stressed, the public facilities are stressed and the private facilities are stressed,” Cerise warns. “We won’t step into this lightly. We won’t do it if we don’t get the funds.”
Matessino ex-presses similar re-servations. “Am I concerned about funding? You bet,” he says. Failure to maintain funding has sunk many a state universal coverage initiative, with TennCare a recent example.
Nonetheless, New Orleans’ health care community is proceeding full bore and establishing the networks required to make the coordinated system work. Ochsner sees its efforts to recruit physicians to community hospitals as a way of extending the clinic’s multidisciplinary approach throughout the region. Tulane sees connections with re-established community clinics and new training programs in community hospitals and the proposed LSU and VA facilities as a way to better integrate care and teaching missions. LSU sees its planned replacement hospitals as a way to extend its expertise in delivering clinic-based comprehensive services to a broader market. “With a state-of-the-art inpatient facility, we can attract Medicare and privately insured patients,” Smithburg says.
“Whether enough funding comes through to fully realize the new system or not, hospitals have a civic duty to move toward a new, more rational delivery model. We live here and the future of this city is our future,” he says. “In the storm, we took all comers and we have been a lifeboat for the medical schools as well. We are doing everything we can to move this community forward and we intend to keep doing it.”—Howard Larkin is a writer in Oak Park, Ill.
This article first appeared in the February 2007 issue of H&HN magazine.