For more than a century, doctors referred their patients to specialists at Johns Hopkins Hospital because it was the best. Today, the best is no longer enough.
As insurance companies weigh care against service and cost, they are knocking the top -- and most expensive -- academic research institutions off their lists of preferred providers. In response, Hopkins is scrambling to make itself both affordable and user friendly.
In the past several months, prodded by Dr. James A. Block, president of the Hopkins Hospital and umbrella Johns Hopkins Health System, senior officers of the hospital and medical school have drawn up a multi-faceted strategy to keep the patients coming while preserving Hopkins' role as one of the world's premier medical institutions.
It includes major cost-cutting, the restructuring of medical school departments; a single billing, referral and service center; and a campaign to prove that, for certain procedures, Hopkins is both better and cheaper.
And in what could prove to be the most significant change in decades, the medical faculty and the hospital are about to recruit primary care doctors -- family practitioners, internists, obstetricians -- to work with Hopkins specialists and send them patients. The goal is to create a group practice with satellite clinical offices reaching into five states.
Primary care doctors are crucial to the broader plan on the Hopkins drawing board to organize its own "integrated health network" -- the buzz word for a system that offers a complete array of medical options for a prepaid fee per member.
"Specialists don't drive managed care. They are at the mercy of primary care doctors," said Dr. John D. Stobo, head of the department of medicine and a key player in Hopkins' transition. "The whole trick is to figure out how to be competitive without discombobulating ourselves," he said.
An expanded array of nonhospital clinical services is a necessity for academic medical centers such as Hopkins. In the future, perhaps only 20 percent of all health care will take place in hospitals, compared with 75 percent today, Dr. Stobo notes. It could take 1.5 million people in a network to provide enough sick patients to support one specialist.
In July, Dr. Stobo becomes the first medical school official to join the hospital and finance side of Hopkins when he becomes vice president of the Johns Hopkins Health System and president of its new company of doctors and managed care.
As Hopkins restructures its medical and business departments,
he said, "We are asking questions now such as 'How big should the faculty be? How many hospital beds should we have? Should it be 1,100 or 700? What are we trying to do here?'"
Pointing the Ivory Tower in a new direction is a huge undertaking.
What Hopkins wants to do -- has to do to stay in the game -- requires a cultural shift at an institution where research is the first allegiance and doctors have had little reason to change. For years the medical faculty remained aloof to the managed care revolution -- hardly noticing when patients and their doctors, tiring of waiting for operating room time and returned phone calls, began to turn elsewhere. When Hopkins entered the managed care arena by expanding its community clinics into a health maintenance organization a decade ago, it was largely staffed by personnel recruited from outside the faculty.
Sheer size
And then there's its sheer size. The health system includes Johns Hopkins and Bayview, formerly Francis Scott Key, hospitals and The Johns Hopkins Medical Services Corp., a nonfaculty group of doctors that provides care under contract to members of Prudential Health Care -- which bought the insurance and administrative parts of Hopkins' HMO in 1991.
All told, more than 13,600 employees work at these sites, including 1,400 research faculty and doctors employed by the School of Medicine. The two hospitals have 1,500 beds between them, and the health system has annual revenues of $701 million. Hopkins Hospital alone last year accounted for more than 9 percent of all hospital admissions statewide -- 53,400 -- and the system collectively reported more than 1.25 million visits to its clinical facilities.
For most of the 1980s, the system made lots of money. Then, between 1991 and 1992, largely as a result of its first foray into managed care and the sale of its former Homewood Hospital, the health system ended up in the hole. The medical services corporation, limited to providing medical care to Prudential members, suffered tremendous losses -- $6 million in fiscal 1992 and $8.1 million last year, an amount that virtually wiped out the combined earnings of Hopkins and Bayview hospitals. Hopkins blames the losses on the terms of the Prudential deal and has filed suit against the insurer, claiming it was misled.
Hopkins managers say the system will show a multi-million-dollar gain for the year that ends June 30, so it enters the fray recovering from a weak financial position. It was barely profitable last year, earning $856,000.
Last year, bond insurers lowered the rating of Johns Hopkins Hospital bonds a notch to AA-, from AA. And although he is optimistic about major cost-cutting efforts, Kenneth Rodgers, analyst for Standard & Poor's in New York, warned that, "If current trends continue, the next rating would be downward."
Compared to other hospitals in its league, Hopkins carries more debt, he said.
It is also late to the cost-cutting game compared with its peers nationally.
And a new $140 million outpatient center, while earning enough to cover its debt, didn't attract as many patients as projected in its first year.
Hopkins' strength has always been volume -- people come because of its reputation. Even now its overnight hospital admissions are up 2 percent compared with a statewide average of 1 percent,
But that volume is threatened as more and more people find themselves in managed care plans that don't include Hopkins.
Many HMOs cross Hopkins off out of fear that academic medical centers are magnets for people with expensive medical conditions, and that HMOs that list it will attract a disproportionate number of the sick and incur higher costs, said Gerard F. Anderson, an expert in hospital finance at the Hopkins School of Hygiene and Public Health.
But the biggest reason HMOs are leaving Hopkins out is cost -- it is much cheaper to use community hospitals for routine services.
Prices are higher
On average, Hopkins' prices are 20 percent higher. A large part of that is because it treats more uninsured poor than other Maryland hospitals; under Maryland's regulatory system the cost uncompensated care is passed on to paying customers. Hopkins' level of charity care is now about 12 percent, two to three times that of suburban competitors.
Another reason is the cost of training 500 residents annually.
But 3 percent to 4 percent of its higher rates for bread-and-butter procedures such as delivering babies or removing appendixes is due to its own inefficiencies, state data shows. Hopkins' late start in cutting costs and dealing with managed care companies has proved costly. It has lost patients from its prestigious transplant program, which it markets to insurance companies nationally, to the University of Maryland Medical Center and elsewhere.
When HealthPlus Inc., a subsidiary of New York Life, approached Hopkins a few years ago about making a deal to send all its liver transplants there, "they wouldn't even talk to us," recalled Chief Operating Officer Gini Dollard. As a result, HealthPlus sends all its liver transplants to the Medical College of Virginia.
The loss of such business drives up prices even more as the cost of operating the program must be spread over fewer patients. That makes it even harder for Hopkins to compete. Hopkins' price for a kidney transplant, $76,248 in 1993, has risen 82 percent since 1990 as business went elsewhere, state data shows. Losing one or two heart transplants would be a major blow, as Hopkins only does about 20 a year. "Before you know it, it will be six, and that could wipe out the whole program," said Stuart Erdman, Hopkins senior director of finance.
In the dark ages
Insiders say if it were not for Dr. Block, Hopkins would still be in the dark ages when it comes to managed care. A man with an easy-going demeanor, he has promoted his ideas tenaciously since he arrived in July 1992.
Chief among them is the cultivation of primary care doctors. This already has translated into the development of the Greenspring office park, a new building under construction in the suburbs north of the city for adjunct and part-time Hopkins faculty and other doctors who might refer patients.
Now comes a much larger effort -- a new company of doctors to be launched jointly by the hospital and medical school in the next few months. Called a physician service organization, it will recruit primary care doctors and build a giant physician group practice from the 900-member full-time faculty, selected part-time faculty and hand-picked primary care physicians.
The PSO would negotiate managed care contracts on behalf of the hospital and the doctors. It also could set up satellite clinical offices for nonfaculty physicians and offer regular education programs in the best treatment methods.
"We want to work with hospitals and their medical staffs to treat people in their community -- to help local physicians better manage care locally," Dr. Block said. in an interview.
Other hospitals in Maryland, notably Sinai, have developed links with primary care doctors and are setting up satellite clinics. A way to offer a single, discounted price per head for medical services is being piloted with state regulators' approval by North Arundel Hospital. But the Hopkins strategy to compete for managed care patients is broader in concept and geographical reach.
Dr. Block envisions a restructuring of the hospital and medical school that could allow the system to offer a complete line of care for certain types of patients. It would include post-hospital care and rehabilitation in less expensive settings as well as home health care.
He said Hopkins also is talking with a select group of Baltimore hospitals about an "affiliation" that collectively could bargain for large contracts to provide medical care.
Initially, as made clear in its recently announced agreement with U.S. Healthcare Inc. to use the proposed provider network, Hopkins is determined to let established insurance companies take the financial risk typically involved in such contracts.
Eventually, Hopkins and many providers could contract directly with employers to provide the care at a set price. Essentially, they would take over the role of insurers.
Meanwhile, in the past year Hopkins has signed half a dozen pacts with managed care companies it snubbed for years. Neither the managed care companies nor Hopkins expects the recently signed agreements, which call for Hopkins to provide care at discounted doctors' fees, to result in a flood of patients to Hopkins any time soon. (Under Maryland law, hospital fees can't be discounted.)
Foot in the door
But for the insurance companies, which make money by steering patients away from expensive hospitals, they are a way to attract new customers who want the option of going to Hopkins. And for Hopkins, they are a foot in the door while it attempts to improve service and slash prices.
That effort has begun in earnest, and it centers on changing the way doctors think.
For instance, it has introduced a referral service for primary care doctors and convinced top cardiologists that their Ivory Tower could crumble if they don't respond to phone calls within three minutes.
Managed care companies do not want to make five phone calls. Refering physicians do not wantto wait five months to hear what happened totheir patients "Dr Stobo said.
And it has begun posting prices in the operating room, where doctors are discovering that an item they thought cost $1.95 is actually $150.
Deeper changes are evident. For example, doctors in the orthopedic department at Johns Hopkins School of Medicine for years bought artificial body parts from nine different vendors. They didn't give it a second thought until insurance companies started comparing prices and found them cheaper at community hospitals.
So the doctors called in the vendors, selected two, one for joints and one for fracture systems, and struck a deal -- exclusive business for a lower price. Orthopedics will save $5.5 million over the next five years.
"This is just the beginning," said Richard N. Stauffer, department head. His goal is to slash the price of orthopedic surgery 20 percent by examining the cost of each step of patient.
The same methods are being used throughout Hopkins. The goal: to reduce its budget by 3 percent in the year starting July 1.
Such efforts are among the reasons Hopkins predicts a much brighter financial report come June 30, the end of its fiscal year.
In addition, Dr. Block said losses in the current managed care program -- the contract to provide care for Prudential members -- should be greatly reduced as the result of management changes.
Surgeries in the new outpatient center are up 20 percent this year, and a new office of managed care is wooing insurance companies with evidence, soon to be published in the New England Journal of Medicine, showing Hopkins to be 20 percent cheaper and its mortality rate 25 percent lower than community hospitals for four high-risk procedures, including the removal of parts of the pancreas and liver.
"When they see the outcome data, they always change their minds."said Dr.Block.
Hopkins faces other potential roadblocks, too.
It is seeking permission from regulators to discount its specialty services such as liver transplants because it says it faces unfair competition from hospitals in nearby states. A way to reduce its extraordinary charity burden, spreading the cost of the uninsured equally among all Maryland hospitals, depends on whether the U.S. Supreme Court takes up cases this term that have stalled similar plans in other states.
Other obstacles include access to capital to pay for data bases and information services or to cover losses if the new Hopkins company bypasses insurance companies and begins to assume its own risk.
Nor is there any guarantee that doctors will want to join the Hopkins network. Many community hospitals have access to some of the same equipment, and doctors trained at Hopkins are working there.
Cutting out bureaucratic hassles is a must. "... if Hopkins is responsive and they offer the best service, they will get referrals," said Dana Frank, an internist in a Hopkins-affiliated group of primary care doctors. "They have to go a long way," he said, in improving service to doctors and patients, "but I think they will get there."
In a way, Hopkins is trying to eat its cake and have it, too. By relying on nonfaculty primary care doctors to help expand clinical services, it hopes to provide the volume of patients specialists will need to stay in business and keep focused on their research and teaching.
If it works, the Hopkins system could easily dominate the region. The central task is to move ahead and maintain its standard of research and patient care. In the next century, Hopkins hopes, people will flock to Hopkins because its specialists have found a way to be the best for less.