Chapter 17: Addressing the Managed Care Crisis (mid 90s) with HR 192 and Other Legislation

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Chapter 17: Addressing the Managed Care Crisis (mid 90s) with HR 192 and Other Legislation

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In this chapter, Dr. Balch talks about factors contributing to MD Anderson's financial instability in the mid-nineties: the impending managed care crisis, requirements that MD Anderson care for all patients even though they could not pay (when Harris County could take some of that burden), regulations governing how MD Anderson �as a state institution�could bid for services, and regulations preventing patients from self-referring. He explains that Dr. Charles LeMaistre ordered an analysis to determine how to address these challenges. He says that MD Anderson's major competitors were private institutions and needed to function more like them to create possibilities for success. He discusses Dr. LeMaistre's approach to working with the Texas legislature, and tells the story of a key reception and the day in 1995 when the self-referral legislation was speedily passed and signed by George W. Bush. Next, Dr. Balch explains how he and other administrators prepared for the impact of self-referral and the rapid increase in patients seen as a result. He talks about a new administrative layer of executive vice presidents were created to coordinate budgets and other efforts across the institution to increase revenue and reduce costs. He talks about an innovative practice of closing inpatient floors that were underutilized to save money. Dr. Balch then sketches the organization of the Executive Council in the newly formed Executive Vice Presidents' Office, specifically devoted to financial discipline and strategic planning. He notes that when the Office began, MD Anderson had no managed care contracts. The office was able to secure 90 contracts in the first twelve months. Dr. Balch next describes efforts to expand MD Anderson beyond Houston into other areas in Texas, materializing Charles LeMaistre's vision to create something new multi-disciplinary cancer care, an area where MD Anderson adds particular value for patients. Dr. Balch then explains that these measures decreased costs prepared the way for the growth generated under Dr. John Mendelsohn.

Identifier

BalchC_04_20190326_C17

Publication Date

3-26-2019

Publisher

The Making Cancer History® Voices Oral History Collection, The University of Texas MD Anderson Cancer Center

City

Houston, Texas

Topics Covered

The University of Texas MD Anderson Cancer Center - Building the Institution; The History of Health Care, Patient Care; Leadership; Building/Transforming the Institution; Multi-disciplinary Approaches; Growth and/or Change; MD Anderson Culture; Professional Practice; The Business of MD Anderson; Portraits; MD Anderson History; Beyond the Institution; MD Anderson and Government

Transcript

T.A. Rosolowski, PhD:

And the last time we talked you were just about to tell the story of Charles LeMaistre's impact on the institution by helping to organize that shift in legislation that enabled MD Anderson to function a bit differently in the marketplace. So I wanted to invite you to tell that story.

Charles Balch, MD:

Thank you. So at that time, which was in the timeframe of 1993 to 1995, MD Anderson was struggling a bit financially, and it had some limitations because of state regulations, including that patients could not self-refer from within Texas. The Texas law was a cancer patient coming to MD Anderson had to be referred by a Texas physician. Now, people could be self-referred from out of state, but a large part of our volume was in-state. The second is the legislation said we had to take care of all Texas patients, regardless of their ability to pay, and we were finding that Harris County patients, who in every other county would have been paid for by the County, were coming to MD Anderson as a State institution, and it was causing a lot of financial issues of us of absorbing care which we felt some of which could be properly accounted for within the County. The other thing in the State is when we do capital expenditures or bid laws for construction you had to follow the State rules, which were usually the lowest bidder, which in healthcare may not be the best quality for the patients. And the other part was state regulations for employeeshiring and firing and so forth. All of these things, after an analysis led by Mickey LeMaistre, were things that should be changed in the legislature if we were going to achieve a financial neutrality or a positive red line. And he took the position that our competition is the private institutions within the Texas Medical Center, and that we are not able to compete financially, or in terms of patient referrals, and in terms of building the institution to the excellence that it needed to with resources to do that, that there had to be a change in the legislature. Now, as you know, one of the uniqueness of Mickey LeMaistre was that he was the former Chancellor of the University of Texas. Mickey was a master at knowing everybody in the legislature, and the governor. He knew the legislative process backwards and forwards. So now, as President of MD Anderson, he started working the process in order to initiate legislation to essentially free MD Anderson from these state regulations that were not enabling it to get to the level of clinical excellence and financial independence that it should have as a state institution. So, of course, he worked the process for some time, until the legislation was crafted. Once it was crafted he held several receptions in Austin that all of us went to, in order to inform the legislature that MD Anderson is unique as a resource in the state, and it should uniquely be freed from state regulations that other University of Texas and other state institutions would not have the same qualifications. So we had to make the case that why should we do this for your institution and not for everyone else. And finally, I remember fondly is that Mickey had a big reception with George Forman, and invited all the legislators to come and have their photo taken with George Forman. And, of course, he was a very popular figure then, and I remember George Forman, whose fist was two to three times the size of mine, holding it up and said, "I want you to fight for this legislation," to everybody, with a smile on his face. But it was clear that he was a really strong advocate.

T.A. Rosolowski, PhD:

Was it controversial in any way?

Charles Balch, MD:

Not that I know of. I'm sure that there were some people in the background who would say, "Well, if you're going to change the laws for MD Anderson, you should change it for our State institution, as well." And that, obviously, was not going to work if everybody else chimed in, and it was going to be too broad a legislative change. Nevertheless, on the first day of the legislation in 1995 HR 192 was presented first to the House. It passed unanimously as the first piece of legislation for the year. It went immediately to the Senate, where it was passed unanimously. And Governor George W. Bush signed the legislation that afternoon. So this actually made a huge difference to MD Anderson going forward. It's one of the reasons that it thrives today is because at that time we were struggling with some negative budgets. We had to downsize our employees, and do it fairly and appropriately. We actually, by reduction in force and attrition, without firing anyone, reduced the size of our employee base by a thousand people. And that was in preparation for what we were told by experts was going to be the managed care coming from the West Coast, affecting everyone around the country, including MD Anderson, and that there would be a further reduction in our revenue for providing the same high-quality services. In addition, we couldn't compete in Texas if physicians had to refer patients and patients couldn't self-refer. What was happening is patients who were at the end of their line, who were burned out, who had lost their insurance, were then being referred to MD Anderson as a last resort. That's fine for us to take care of those patients but you have to balance that with revenue and a full spectrum of patient care that included early patients who wanted to come to MD Anderson but couldn't necessarily get a physician to refer them. It was really an onerous part of the legislation for us. And then, finally, there were millions of dollars of indigent patient care that was not paid for by the State, and for patients who lived in Harris County. And that was also an issue that we felt as a State institution that Harris County, like other counties throughout Texas, had to absorb some of the indigent patient care in their budget, and that they had a responsibility for doing that. But in our legislature, it said, "We will take care of all Texas patients, regardless of their ability to pay." And then the final area was in the State bid laws. We were doing major construction. We had a lot of capital expenditures of high-end equipment. And in order to build high-quality hospitals with the technology and the infrastructure that we needed to, at the same level of St. Luke's Hospital, Methodist Hospital, Hermann Hospital, and other hospitals in the Texas Medical Center, we had to make our bids based upon the quality and the experience of the construction people and the equipment that we were purchasing, not necessarily whether it was the lowest bid price. So that major legislation, landmark legislation, enabled MD Anderson very quickly to get to more revenue-neutral in our budget, to absorb some of the impact of managed care contracting, which we had to get into, and for which I was the Medical Director of the Managed Care Department, including recruiting a new Associate Vice President for Managed Care. This is something we take for granted now, but it didn't exist within the organization.

T.A. Rosolowski, PhD:

I want to ask you more about those roles in just a minute, but I also wanted to get just a little bit more detail on that period after the legislation was signed. How was their planning done to begin to act on the changes, these official changes?

Charles Balch, MD:

Well, in all of these areas, because of the new legislation, we could inform the Texas public that they could self-refer to MD Anderson, so we opened up hotlines for patients to call to review their circumstance and the appropriateness of coming here. It jumpstarted our new patient referrals, especially with those patients who were fully insured and who had earlier-stage disease who otherwise did not have a pathway for getting to the institution.

T.A. Rosolowski, PhD:

Do you have a sense of? I mean, I know it's hard to recall numbers years after the fact, but what was the increase, and how quickly did it increase?

Charles Balch, MD:

It increased within 12-24 months. It was pretty rapid. At the same time, with David Bachrach as the EVP for Administration, I was the EVP for Medical Affairs and Donna Sollenberger [oral history interview] was the VP for Hospital and Clinics, and the administrative team worked very diligently. We actually formed an Executive Council, which I chaired, of all the vice presidents, the president of MD Anderson Outreach Corporation, which Bob Shaw was the CEO and I was the first Medical Director of MD Anderson Outreach, so that we had coordination across the institution, both in our planning programmatically but also, importantly, of syncing our budgets and making the budgets transparent to everyone so that we had a collective input of how are we going to work together to be revenue-neutral and then revenue-positive as an institution, which meant both increasing revenue and reducing expenses. And we did such things that were pretty innovative at the time. We closed entire floors because their occupancy was too low, and we were paying staff for an occupancy that was less than 60 or 70 percent. So we

T.A. Rosolowski, PhD:

These were inpatient?

Charles Balch, MD:

Inpatient floors. So we closed floors in a rolling way, depending upon the census. So we had floating nurses and staff on call so that, depending upon the census on any given day, we could open and close units, but it had a major reduction in our overhead by keeping our occupancy at around 85 percent.

T.A. Rosolowski, PhD:

Would you like to say more about this executive team that worked together, the EVPs? So these were new roles with new kind of scopes of responsibilities to respond?

Charles Balch, MD:

Yes. When Mickey asked me to become the Executive Vice President for Medical Affairs, other people, such as Bob Hickey, had those roles, but they never had an office, and what Mickey envisioned as the EVP office would be a companion to the Executive Vice President for Administration under David Bachrach, and that we would work together for the oversight programmatically and in the budget for the entire institution. So included in that was setting up an Executive Council, so then all of the Executive Vice Presidents and the VPs responsible for budgets and programs throughout the institution would meet together once a month and review our progress, make recommendations for strategic directions, get updates on where we were in the budget. We instilled quite a bit of budget discipline, which wasn't coordinated in the past. And the reason for that is when you're in a circumstance where your budget is becoming difficult because of declines in revenue, you had to fix both sides of the equation: increasing revenue through patient care, through managed care contracts, which would increase revenue, for which we went from almost no managed care contracts to 90 managed care contracts within about a 12- or 14-month period of time. That enabled patients to come under those insurance contracts that otherwise would not have been able to come to the institution, because we would have been out of network. We also set up the MD Anderson Outreach Corporation, and that was something I also worked with Bob Shaw, and we set up MD Anderson Cancer Center in Clear Lake, under a doctor named Dr. Roger Rodgers, who was a medical oncologist there. That helped us in referrals for that part of the city, and that was the forerunner of the Houston-area network that is in place today. We also established the MD Anderson Cancer Center in Fort Worth, named after Tex Moncrief, which was yet another way of working with referring physicians in the Fort Worth area, and had discussions in other cities. I think one of Mickey's proudest accomplishments in the outreach corporation was his vision of working with a physician named Buck Brown in Orlando, for which we made many trips to Orlando to help establish the Orlando Cancer Center, which then after a little bit of growth became the MD Anderson Cancer Center in Orlando. And this, again, was part of Mickey's vision of creating something that wasn't there, of selecting Central Florida as an area that was underserved with regard to multidisciplinary cancer care, and working with the Orlando regional healthcare system, and with Buck Brown, and I worked with the Surgical Department and the surgical community. Several of our fellows that we'd trained in surgical oncology went out there to practice. And after a beginning, it now has grown to what is now a ten-story building, fully funded, and is the major referral hub for multidisciplinary care in Central Florida. Now, in fairness, with subsequent presidents there wasn't the same kind of service, and the payments for carrying the MD Anderson brand were out a bit, and in recent years MD Anderson and the Florida institution became divorced, and it no longer carries that logo. But I think the value of providing multidisciplinary care in a large population segment was something that Mickey even looked outside of the state to see where could we add value by exporting our excellence in our organization and multidisciplinary care, and that was a huge success in Orlando, and still is today.

T.A. Rosolowski, PhD:

Is there anything else you want to say about those roles, and the transformation of administration within the institution?

Charles Balch, MD:

Sure. Well, at that time, in 1994 to 1996, managed care was something that was taking place, especially in the West Coast, that involved managed care contracts that significantly reduced revenue for the same types of medical services. And our consultants, some of whom were from California, said, "This is going to come to Texas. You need to be prepared for it." So we did initiate a Managed Care Office, started negotiating managed care contracts, and preparing for a reduction in revenue by decreasing the cost of operating the institution. In fact, when John Mendelsohn came afterwards, it was clear, in retrospect, the managed care wave didn't quite reach Texas, but he had the benefit that we had really made the institution leaner, and enabled a foundation with a positive budget for him to build on. I also remember, interestingly, when the search was going on for the president that there were quite a lot of prominent leaders at MD Anderson who said our budget couldn't get beyond $1 billion. We were already too big. We weren't a family anymore. And I said, I don't know how to cap a budget when you're doing something excellent and people are coming to see us, that we have to accommodate the growth. And of course, as you know, when John Mendelsohn left the budget went from $950 million when Mickey and I finished to over $4 billion at the end of his presidential year. But I think it speaks to the fact that when you're doing a good job, and you have the resources based upon your grants, your contracts, the philanthropy, and your patient care revenue, that it's proper to grow to continue to provide that level of excellence. There's always the downside as you get bigger that you may not be able to give that personalized service, but I think it's been remarkable that over the years, as MD Anderson has grown, it still has that reputation that it well deserves of providing excellent service. It still competes better than almost any institution for federal and other grants to support its research. And its support by the philanthropic community has been astounding. All of those things collectively have enabled it to continue to grow and to thrive.

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Chapter 17: Addressing the Managed Care Crisis (mid 90s) with HR 192 and Other Legislation

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