A risk that ‘no­body will have ac­cess to pe­di­atric spe­cialty care’

Modern Healthcare - - Q & A -

Since 1999, Christo­pher Dawes has served as pres­i­dent and CEO of Lu­cile Packard Chil­dren’s Hos­pi­tal at Stan­ford, a 300-bed hos­pi­tal in Palo Alto, Calif., af­fil­i­ated with Stan­ford Univer­sity that has 47 out­pa­tient sites through­out the Greater San Fran­cisco Bay Area.

It’s sched­uled to open two pavil­ions and new di­ag­nos­tic fa­cil­i­ties in 2017, at a cost of $1 bil­lion. Dawes pre­vi­ously served as chief op­er­at­ing of­fi­cer of the hos­pi­tal. Be­fore that, he held se­nior man­age­ment po­si­tions at Pa­cific Pres­by­te­rian Med­i­cal Cen­ter, San Fran­cisco and Santa Clara Val­ley Med­i­cal Cen­ter, San Jose, Calif. He sits on the boards of the Na­tional As­so­ci­a­tion of Chil­dren’s Hos­pi­tals and Re­lated In­sti­tu­tions, the Cal­i­for­nia Chil­dren’s Hos­pi­tal As­so­ci­a­tion and the Santa Clara Fam­ily Health Plan. Mod­ern Healthcare re­porter Bob Her­man re­cently spoke with Dawes about is­sues raised by Med­i­caid ex­pan­sion, nar­row-net­work health plans and high pre­scrip­tion drug costs. This is an edited tran­script.

Mod­ern Healthcare: Has Cal­i­for­nia’s Med­i­caid ex­pan­sion in­creased the num­ber of pa­tients at Lu­cile Packard and Stan­ford Chil­dren’s Health who are on Medi-Cal?

Christo­pher Dawes: The num­ber has not in­creased very much. About 42% of the pa­tients we see are cov­ered by Medi-Cal. The big is­sue for us and other chil­dren’s hos­pi­tals in Cal­i­for­nia is that, ac­cord­ing to a re­cent Kaiser Fam­ily Foun­da­tion re­port, providers treat­ing Medi-Cal pa­tients are only paid about 53% of Medi­care rates. Cal­i­for­nia ranks 48th among the states in terms of what it pays for Medi-Cal re­cip­i­ents. So our chal­lenge is that we’re not paid by the state the full cost of pro­vid­ing care to these chil­dren. We have a sig­nif­i­cant deficit on that pop­u­la­tion, and we have to make up that deficit through our com­mer­cial pa­tients, which rep­re­sent about 55% of our pa­tients.

This is a very big is­sue in Cal­i­for­nia be­cause over the next few years, they’re es­ti­mat­ing that about 50% of kids will be cov­ered by Medi-Cal, and ac­cess be­comes an in­creas­ing is­sue. We ac­cept any­body re­gard­less of their abil­ity to pay, but that’s not true across the whole state.

MH: Has your or­ga­ni­za­tion had prob­lems with nar­row-net­work health plans ex­clud­ing your chil­dren’s hos­pi­tal?

Dawes: The trou­ble with nar­row net­works is that they’re ba­si­cally built around price and a lim­ited num­ber of providers. For rou­tine adult care, that may or may not work. But when you’re look­ing at kids with can­cers and pre­ma­tu­rity and so forth, it’s a huge is­sue. If we sim­ply have net­works de­fined by low price and a thin co­hort of providers, vir­tu­ally no­body will have ac­cess to pe­di­atric spe­cialty care.

MH: Have there been any net­works that Stan­ford has been ex­cluded from?

Dawes: We have not been ex­cluded yet. We have been put in dif­fer­ent tiers. We ne­go­ti­ate pretty hard with pay­ers to en­sure that we’re al­ways in tier 1. That hasn’t al­ways hap­pened. What that means is that kids whose par­ents are cov­ered by a par­tic­u­lar in­sur­ance prod­uct may be de­nied ac­cess to us. We fol­low up on those vig­or­ously. But as of to­day, there hasn’t been a nar­row net­work cre­ated that we’ve been ex­cluded from. Still, we’re an­tic­i­pat­ing that to be the case over the next few months or years, be­cause nar­row net­works are pick­ing up some pop­u­lar­ity.

We’re kind of in a unique spot be­cause we’re in Sil­i­con Val­ley, and the high-tech firms are try­ing to at­tract and re­tain a lim­ited re­source of engi­neers. So they have a ten­dency to of­fer more ro­bust ben­e­fit pack­ages than you would find in other in­dus­tries. They are very in­ter­ested in of­fer­ing ben­e­fit plans that in­clude us. If you look at other chil­dren’s hos­pi­tals in Cal­i­for­nia and other states, it’s be­come a much big­ger is­sue for them.

MH: What are you and other chil­dren’s hos­pi­tals do­ing about this nar­row-net­work is­sue?

Dawes: The Cal­i­for­nia Chil­dren’s Hos­pi­tal As­so­ci­a­tion has leg­is­la­tion pend­ing, both at the state level and fed­eral level, to cre­ate ge­o­graph­i­cally based net­works of care for kids with com­plex and chronic ill­nesses. The chil­dren’s hos­pi­tal would be a key com­po­nent of that, but in ad­di­tion, you’d have re­hab

“The trou­ble with nar­row net­works is that they’re ba­si­cally built around price and a lim­ited num­ber of providers.”

and other ser­vices that these kids with spe­cial needs re­quire. The net­works would go at risk for man­ag­ing a pop­u­la­tion of kids with spe­cial-care needs. We would have within that net­work all the re­sources re­quired to care for these kids. On the fed­eral level, we would ac­cept a rate of in­crease on an an­nual ba­sis that will be lower than the cur­rent rate of in­crease for Med­i­caid. So the gov­ern­ment would save money, the kids would be bet­ter served, and the providers would have as­sur­ance that they would re­ceive a suf­fi­cient rev­enue stream to sup­port the needs of these kids.

MH: Have you no­ticed any pickup in high-de­ductible plans?

Dawes: We’re see­ing a lot more ben­e­fit plans that have much higher de­ductibles. It’s mak­ing the con­sumer much more aware of costs. From a macro per­spec­tive, I think that’s a good thing. A lot of the pop­u­la­tion we serve is fairly so­phis­ti­cated, and many of the com­pa­nies are pro­vid­ing tools to their em­ploy­ees to help them de­ter­mine qual­ity and cost for var­i­ous providers.

We’re see­ing con­sumers get a lot more so­phis­ti­cated in mak­ing their choices. They’re get­ting a lot pick­ier, they’re ask­ing more ques­tions, and that is def­i­nitely im­pact­ing us, and we’re re­spond­ing. We’re look­ing care­fully at our prices, par­tic­u­larly for an­cil­lary ser­vices, so we can be more com­pet­i­tive.

One of the is­sues is we’re an aca­demic med­i­cal cen­ter, and we price our ser­vices based on our cost struc­ture, which is quite ex­ten­sive given that we’re do­ing train­ing and re­search and de­liv­er­ing ser­vices to very com­plex pa­tients.

When our more rou­tine pa­tients come through, we’ve been very thought­ful about try­ing to price more thought­fully for those pa­tients, so they’re not shoul­der­ing the bur­den for the larger ex­penses of our en­tire en­ter­prise.

MH: How has in­creased pre­scrip­tion-drug spend­ing af­fected your health sys­tem, and what drugs in par­tic­u­lar are caus­ing the most fi­nan­cial pres­sure?

Dawes: Be­ing a leadingedge aca­demic med­i­cal cen­ter, we have a ten­dency to use the latest drugs and in­no­va­tions. We have lots of clin­i­cal tri­als go­ing on as well. Drugs in sup­port of he­mophilia pa­tients have been a sub­stan­tial is­sue for a num­ber of years, be­cause the cost on an an­nual ba­sis can be in the hun­dreds of thou­sands per pa­tient. So the cost of pre­scrip­tion drugs, and par­tic­u­larly new drugs, is a ma­jor is­sue for us. The cost of med­i­ca­tions al­ways is a sub­stan­tial part of our cost struc­ture and usu­ally goes up. When the cost of liv­ing goes up 2%, drugs in­vari­ably go up in the 6% to 9% range, and some­times dou­ble digit.

MH: Are you able to ne­go­ti­ate dis­counts or re­bates with drug com­pa­nies?

Dawes: We have in cer­tain lim­ited cases. Our clin­i­cal tri­als al­low us ac­cess to drugs at a lower cost. Out­side of clin­i­cal tri­als, we have very good re­la­tion­ships with a lot of the phar­ma­ceu­ti­cal com­pa­nies, and we work hard to try and get the cost down. A lot of our drugs are pur­chased through group pur­chas­ing with other chil­dren’s hos­pi­tals. But we still find our­selves in a po­si­tion where many drugs are ex­traor­di­nar­ily ex­pen­sive, and it’s very chal­leng­ing for many fam­i­lies.

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