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Hospitals & Health Care: The Road Ahead
YNHH's Zaccagnino charts the future of his institution — and his industry
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Business New Haven
2/4/2002
By: BNH
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Last month Yale-New Haven Health System President Joseph A. Zaccagnino sat down with BNH to discuss the rapidly and radically evolving health-care industry both locally and nationally as well as the state of his institution, which includes Yale-New Haven Hospital, Bridgeport and Greenwich hospitals and the Yale Psychiatric Institute. Following is Part II of that interview, the first half of which was published in the January 21 BNH.
In general, what are the factors driving up health-care costs at almost three times the rate of the Consumer Price Index?
National health-care expenditures [this year] are projected to reach about $1.4 trillion. But that's a funny number; you could get concerned about that, or you could also recognize that, given the aging population, there may not be anything wrong with that much of our economy involved in health care. We have evolved to a service economy overall, and health care is probably the core service that each of us requires over time.
In addition to the aging population requiring more care, and more intensive care, what are other inflationary factors?
We [previously] talked about underpayments by governmental payors [for such services as Medicaid and Medicare], increases in the number of uninsured as the economy is impacted, increases in prices charged by payors [in terms of] premiums to try to cover those costs, and then there is the fact that consumers expect more us. We focus more on not only how to delivery high-quality services clinically, but also how to be service-responsive around all the things that [patients] evaluate when they come for service or care.
How are hospitals doing across the country?
Not well. About a third have negative total margins [i.e., are operating at a loss]; about 50 percent have negative Medicare margins. In Connecticut in 2000, 13 hospitals [out of 31] had operating losses - which means their expenses for services were mot covered by revenues - and 11 of those [posted losses] on the bottom, bottom line, which means that even including investment income and everything else they could muster, they still couldn't cover their operating [expenses].
In addition to its teaching and research functions, how does the strategic vision of YNHH differ from that of other large hospitals?
Clearly, we're in a position to use quality as a differentiator, and that's what we work toward. Patient safety and clinical and service excellence are top priorities for us across the system. Also, obviously our relationship with the Yale School of Medicine differentiates us. But, like our role in training physicians, as well as the introduction of new technologies in health-care delivery - all must be covered by charges [billed to] patients. We have no separate sources of funding for that.
So a different mission ultimately translates into a different cost structure.
[Yale-New Haven's] international role in training physicians and allied health-care professionals, the international responsibility to advance clinical practice, to improve quality and safety, as well as the local community mission to care for the poor and to absorb $16 million a year is what gets rolled up into why a price difference exists. But we have to compete in the marketplace with the provider that's not doing any of that.
You must think quite a bit about the impact of rapidly evolving technologies and pharmaceutical advances on health-care delivery over the foreseeable future.
In the longer term it offers the prospect of addressing complicated issues - cost issues, service issues, issues of [treating] diseases that we can't help people with now. So on the one hand it offers tremendous possibilities and excitement. On the other hand, as these things are introduced it creates short-term operating pressures because of the cost impact that goes along with medical breakthroughs, and the lag that occurs between the demand for such services and the need to pay for them [on the one hand], and the potential for added revenue to offset the costs associated with them. For example, in the area of pharmaceuticals there have been many major introductions of new pharmaceuticals that are quite extraordinary. Unfortunately, they often come with quite extraordinary costs. In some cases they improve comfort and convenience; in other cases they improve quality of life, or they may in fact determine whether or not life will continue. In some cases it has impacted the health-care system here and elsewhere because it has changed what people need to be hospitalized for, and improved the quality of their lives if they are able to be treated as out-patients, for example. Both technological advances and pharmaceutical advances [offer] the potential to radically change what hospitals look like, as more and more is done to move patient care to the out-patient setting - which is not only less expensive but often much more convenient and appealing for the patient. What is left behind are the most complicated cases and most severe cases requiring the most intensive care. Over time we've seen this shift resulting in the [traditional] hospital becoming more and more like an intensive-care unit.
If you had known years ago what you know now about the direction of this industry, would you have chosen hospital administration as a career?
[Laughs.] I think I would have. I was very excited and very challenged initially. But being involved in a field that was relatively staid back in the early 1970s after the excitement of Medicare was over, it was interesting - but the level of sophistication and challenge was limited. So I think the respect for the profession was less, because it was viewed more as a kind of superintendent's role - running the physical plant and so on. I think the part, though, that you really have to consider is the pressure and the stress - and the time demands. It is a limitless job. So that's a challenge, carving out some time for your family. The greatest form of flattery anyone could get is that my oldest son entered this same field; he's now a vice president at New York Presbyterian. So it's very challenging - but also very rewarding.
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