A recent Wall Street Journal article that focused on a quirk in US Medicare payment rules that may be gamed by long-term hospitals also revealed the plight of physicians employed by such hospitals, and worse, the danger posed by such gaming to patients.

Discharging Patients at Particular Times Maximizes Hospital Revenue

Here is how the rule works:

Under Medicare rules, long-term acute-care hospitals like Kindred’s typically receive smaller payments for what is considered a short stay, until a patient hits a threshold. After that threshold, payment jumps to a lump sum meant to cover the full course of long-term treatment.

That leaves a narrow window of maximum profitability in caring for patients at the nation’s about 435 long-term hospitals, which specialize in treating people with serious conditions who require prolonged care.

Systemic Evidence that Discharges are More Likely to Occur at Times that Maximize Revenue

Thus the Medicare rules provides financial incentives for discharging patients at particular times during their admissions. The reporters found some systemic evidence that patients were more likely to be discharged at those times:

The Journal analysis of claims Medicare paid from 2008 through 2013 found long-term hospitals discharged 25% of patients during the three days after crossing thresholds for higher, lump-sum payments. That is five times as many patients as were released the three days before the thresholds.

The issue here is that the decision to discharge a patient from any kind of hospital should be made by health care professionals and their patients, sometimes with the input of the patients' families. The decision should depend on the patients' medical status, the availability of follow-up care, and the patients' wishes and values. Hospital managers should have no direct influence on these decisions. So why would patient discharges occur more often at the times when they are most financially advantageous for the hospitals?

An Illustrative Case

The Wall Street Journal article opened with an illustrative anecdote.

A Kindred Healthcare Inc. hospital in Houston discharged 79-year-old Ronald Beard to a nursing home after 23 days of treatment for complications of knee surgery.

The timing of his release didn’t appear to correspond with any improvement in his condition, according to family members. But it did boost how much money the hospital got.

Kindred collected $35,887.79 from the federal Medicare agency for his stay, according to a billing document, the maximum amount it could earn for treating most patients with Mr. Beard’s condition.

If he had left just one day earlier, Kindred would have received only about $20,000 under Medicare rules. If he had stayed longer than the 23 days, the hospital likely wouldn’t have received any additional Medicare money.


Between mid-2011 and the end of 2013, the Kindred hospital that treated Mr. Beard discharged eight times as many Medicare patients on the day they reached their threshold as on the day before. In the days immediately after the lucrative three-day window, discharges plummeted. Kindred acquired the hospital, which has two campuses, in the summer of 2011.

Mr. Beard, a retired drilling-equipment salesman, was discharged from Kindred’s facility on Nov. 12, 2011. His family says his condition had deteriorated at the hospital and they wish he had been released sooner.

Mr. Beard was admitted to Kindred Hospital Town and Country in Houston in late October 2011 after surgeons found the site of an earlier knee surgery had become infected with drug-resistant bacteria called MRSA. He was sent to the Kindred facility that Oct. 20 for a course of antibiotics, according to the records and Ms. Beard.

On his fourth day at the Kindred hospital, nurses administered the drug Remeron to treat sleeplessness. Mr. Beard’s wife says he had an allergy to that drug—documented at the time on a wristband provided by another hospital—and he went into a coma for a time.

'I wished then that I could take him somewhere else,' says Ms. Beard, now 77 years old.

Over the next two weeks, Mr. Beard’s condition deteriorated as he received treatments from a dozen doctors. A Medicare document provided by his wife shows he received an hour and a half of 'critical care' services on Nov. 9, three days before Kindred discharged him.

When he left the facility in a transport van on Nov. 12, bound for a nursing home, he complained of nausea, his wife says. The van driver called for an ambulance from a gas station. The ambulance took him to the emergency room at a general hospital in Katy, Texas.

Ms. Beard says doctors determined that, aside from low blood pressure, he was stable. She drove him to the nursing facility herself, but because Kindred’s discharge papers had been left behind in the van, the nursing facility declined to accept him. He wound up back at the Katy hospital to begin an additional three-day hospitalization, where doctors performed tests to monitor an existing heart condition, the billing documents show.

Ms. Beard says she doesn’t regret that her husband left Kindred’s hospital when he did, despite the chaos of those days. 'I think if he had stayed at Kindred, he would have laid there and died,' she says.

Note that Mr Beard was apparently discharged during the window of maximum revenue for the hospital, but there was no obvious medical reason for his discharge on that particular day.

Evidence that Hospital Managers Pressure Health Care Professionals to Discharge Patients at Times that Maximize Revenue

The WSJ statistical analysis suggested that Kindred and other for-profit long-term hospital corporations are particularly prone to discharge patients at times that maximize revenue.

For-profit companies such as Kindred and Select were more likely to discharge patients during the most-lucrative window than nonprofit competitors, the Journal’s analysis shows. Nonprofits discharged 16% of people during the window, compared with 27% at for-profits.

The WSJ also found evidence that managers at two for-profit long-term hospital systems pushed health care professionals to discharge patients at the most profitable times.

Former long-term-hospital executives say they sometimes called the threshold the 'normal low' or 'five-sixth date,' referring to the Medicare formula. The Journal interviewed 16 people who have worked at facilities operated by Kindred or rival for-profit system Select Medical Corp. in 10 states, including former hospital administrators, doctors and case managers who oversaw discharges. Those two publicly traded companies billed Medicare for 42% of all long-term-hospital claims it processed during the period the Journal studied.

The former administrators say their corporate bosses exerted pressure to discharge as often as possible during the most lucrative days, rewarding managers who succeeded and questioning those who didn't.

'You’d hear from the powers that be if your hospital was not…hitting a pretty high percentage of your patients for Medicare' soon after the payment threshold, says Karen Shammas, who was chief executive of a Kindred hospital in Peoria, Ariz., until late 2013, when she retired.

Ms. Shammas, like some other long-term-hospital administrators who were interviewed, described meetings in which hospital staffers would discuss plans for each patient at the facility—armed with printouts from a computer tracking system that included, for each patient, the date at which reimbursement would shift to a higher, lump-sum payout.

Ms. Shammas says she never kept patients hospitalized for financial reasons if they were medically ready to leave.

Kindred declined to comment in detail on discharge patterns or corporate policies.

Former executives at both Kindred and Select say doctors, pressured by hospital administrators, sometimes ordered extra care or services intended in part to retain patients until they reached their thresholds, or discharged those who were costing the hospitals money regardless of whether their medical conditions had improved.

Former executives at hospitals run by each chain say their bonuses depended in part on maintaining a high share of patients discharged at or near the threshold dates to meet earnings goals.

In some cases, their bosses gave them specific targets for discharge rates during the most lucrative days, the former hospital executives say. When they missed their targets, some of the executives say, their bosses asked for explanations as to why individual patients weren’t released during the target window.
Select said in a written statement that its long-term hospitals discharge patients 'based on their medical condition and not on the Medicare reimbursement system' and 'do not manipulate discharge timing based on financial considerations.' The company said bonuses are based on 'overall financial performance,' among other factors, and not the share of patients discharged near the threshold.

Select’s corporate managers were 'very intense about managing that length of stay really effectively to maximize the profit potential for any particular patient, says Robert Marquardt, former CEO of a Select hospital in Fort Wayne, Ind.

If a patient was two days from the threshold, 'you were incentivized to see if you couldn’t find a reason to keep them for two more days,' says Mr. Marquardt, who left the company in December to work as a consultant.

Mr. Marquardt says he didn’t believe the efforts caused harm. 'You might play the game a bit, but you would never put a patient at risk,' he says.

Select said while it monitors discharge dates and other metrics and seeks to understand deviations from norms, it doesn’t set discharge targets. It said efforts to prolong a patient’s stay or discharge a patient early would be a violation of Select’s policies.'

So the WSJ article presented statistical analysis that patients are more likely to be discharged on the days that are most advantageous from the standpoint of hospital revenue than on other days.  The WSJ  article also presented narratives by several people that suggest that top managers gave incentives to lower level managers to maximize the number of discharge on the most financially advantageous days, and that managers tried to directly influence physicians, presumably those employed by the hospital systems, to discharge patients on the most financially advantageous days.

The Private Gain of Mangers of Long-Term Corporate Hospital Systems

I do not know a way to determine how much money Kindred and Select may have made from the practice of timing long-term hospital discharges for maximum revenue, but there is certainly evidence that the top managers of these corporations do very well.

Based on the most recent available (2014) proxy statement from Kindred, its CEO, Paul J Diaz, received $4,303,072 in 2013, and all listed managers received more than $1 million that year. Based on the most recent available (2014) proxy statement from Select Medical Holdings Inc, its CEO, Robert A. Ortenzio, received $3,557,860 in 2013, and its executive chairman, Rocco A Ortenzio, received $2,701,916 in 2013, and all listed managers more than $1.5 million that year

Revenue Maximization as "Corruption"

The WSJ reporters interpreted their findings as "a sign that financial incentives in the Medicare system may shape patient care."  It thus implied that a reasonable policy response to this problem would be to change the  Medicare rules for paying for long-term care.  However, left unwritten was that only in a health care system in which managers feel that short-term revenue may trump the best interests of patients, and in which managers are empowered to influence, if not override physicians' decision-making would such financial incentives have any major effect.

The WSJ article did include an expert's opinion that it was unethical, or worse, for hospital managers to pressure physicians to discharge patients at times that maximized revenue, rather than times that were optimal for the patients' medical care and well being.

The pattern of discharging patients at the most lucrative juncture is 'troubling and disturbing,' says Tom Finucane, a doctor and professor at Johns Hopkins University School of Medicine, after learning of the Journal’s findings. 'The health-care system should serve the patients and try to improve their health, and any step away from that is a corruption.'

Dr. Finucane and other medical experts say longer-than-necessary hospital stays increase risks for medical errors, infection and unnecessary care. Discharges that come too early can mean patients don’t get care they need.

Recall that the Transparency International (ethical, not necessarily legal) definition of corruption is abuse of entrusted power for private gain. Physicians are entrusted to make decisions on behalf of their individual patients, so as best to improve their patients' health and health care outcomes. Hospitals are entrusted to provide the settings in which physicians can act in the best interests of their patients. So it seems clear that pressuring physicians to discharge patients so as to maximize hospital revenue regardless of the effect of such discharges on patients is corruption in this sense, health care corruption.

Note that health care corruption has generally been a taboo topic, especially when the corruption occurs in developed countries.  It is notable that the WSJ article made that topic slightly less anechoic.

Furthermore, framing this problem as health care corruption that endangers patients suggests that the issue goes far beyond a Medicare policy that is easy to game, and that another policy response, such as an investigation to see if such actions were legal, might be more to the point than adjusting the Medicare payment formula.

Beyond that, there are lessons for doctors and more globally for policy makers.  We have previously discussed the plight of the corporate physician, caught between his or her oath to put care of individual patients above all other concerns, and effective subservience to managers who may well put short-term corporate revenue, and growing their own incomes, ahead of all other concerns, including patients' and the public's health.  Health care professionals should not hold any illusions that they can take jobs with corporate health care providers and uphold their own values.

Furthermore, the plight of the physicians, and more importantly, the patients at corporate long-term hospitals raises a bigger policy question.  In my humble opinion, is it now time to end our badly conceived experiment with gilded age health care.  In the US, we have decided that the "free market" can solve all of our health care problems, disregarding the near impossibility of maintaining a real free market in health care.  Instead, we now have health care dominated by poorly regulated large corporations in an era when top managers believe they have a mandate to do anything to improve short-term revenue,  and often conveniently increase their own wealth.  It appears to be time to bring back the old laws against the corporate practice of health care, and consider whether we should allow hospitals and other health care organizations that provide direct patient care to be for-profit enterprises.

Meanwhile, patients and health care professionals, you should realize that you approach corporate hospitals and other corporate health care providers at your own risk. 

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