Jim Lott On Healthcare And California
After nearly two decades with the Hospital Association of Southern California, executive vice president Jim Lott told Payers & Providers this week that he will be stepping down on May 31.
Lott has been quoted in hundreds of newspaper articles and radio and television reports on healthcare issues during his tenure at HASC and the Hospital Association of San Diego & Imperial Counties, where he served as president between 1989 and 1994.
A native of Louisiana whose family moved to Los Angeles when he was 5 years old, Lott literally worked his way up through the rungs of Southern California's healthcare sector. His first job was a clerical position in the basement of the Los Angeles County Department of Health Services. He later served as an assistant hospital administrator at Los Angeles County-USC Medical Center and director of the California Children's Services Program before segueing for a time into politics. He became California's first-ever African-American chief consultant to a state Senate committee when former state senator Diane Watson appointed him to the post, where he served for nearly a decade.
Lott answered a few questions posed by Payers & Providers editor Ron Shinkman in this Q&A article, which will now be an occasionally occurring feature of the publication.
Q: The average non-profit hospital CEO pay package is well over $700,000 a year, and 20 CEOs earn over $1 million. When did the pay become so high? What are the factors? Are there leaders out there who are willing and able to run an acute care facility for $500,000 a year?
A: I think the real issue here is that our critics want to hold not-for-profit hospitals to a different standard than other businesses – never mind that the CEOs of these hospitals operate under the same financial duress in a free and highly competitive market as other businesses do. In the current environment, it’s important to understand that though the missions of not-for-profit hospitals are different than that of their investor-owned counterparts, the challenges of running either are similar, and the goal is to provide high quality medical care without losing money along the way. “No money, no mission,” a former nun leader of a Catholic hospital system is often quoted as having said to underscore this point.
The competition for skill and talent to lead hospitals and hospital systems kicked into high gear when the textbook for running hospitals was rewritten in 1983 after Medicare and Medi-Cal stopped covering the full cost of providing hospital care to program enrollees. Those changes immediately lowered and continue to lower the net operating margins for most hospitals in California. So, we need to pay for the best executives available in a competitive marketplace to manage this challenge.
We also tend to ignore that hospitals are key contributors to their local economies. Depending on the hospital, anywhere from 5 to 12 percent of the local economy is driven by the existence and financial performance of the local hospital. That’s a pretty significant collateral benefit for our local economies, so we really want the best navigators in the fleet to be at the helms of these hospitals.
If that’s not convincing, be assured that the governing boards of not-for-profit hospitals are tuned into their fiduciary responsibilities, and I know that most do executive compensation modeling –fact checking– that is, they consider what the market is providing in the way of compensation as a key part of their approvals of compensation for their CEOs.
I hope this gives our critics something more to think about on this issue.
Q: Many experts consider price transparency crucial to reigning in healthcare costs. Yet few hospitals offer a price list, and Steven Brill's recent Time magazine article noted that many hospitals disregard them altogether. In California, hospitals have fought against publishing price lists in a manner that would be meaningful for consumers. Why are they so reluctant to publish prices?
A: Unlike most everything else consumers buy, hospital care is paid for mostly by another party, and at payment rates either negotiated or set by another party. The actual payment for the care we receive almost never is the price or the charge, except if we are uninsured. Rather, it is part of a calculus used to determine a much lower payment. It’s for this reason that hospitals question the value of publishing prices, though, by law, patients in California do have access to this information.
The real problem, I think, arises from the shock response that uninsured and underinsured patients experience when they receive medical bills for care provided while hospitalized that list our raw, unadjusted prices. For example, $27 for an ibuprofen tablet. Really? Well, as outrageous as that may seem, know that the price includes the added cost of dispensing that pill from the hospital pharmacy, administration of the pill from a licensed professional, and the cost of the safeguards in place to insure against medication errors. Still, we know that swallowing the pill is easier for the consumer than swallowing the rationale I just offered for its price. So, through our trade associations, know that our industry is working diligently on this issue.
Q: California seems ahead of the game when it comes to the building and launch of its exchange, Covered California. However, many states are deferring to the feds. With early enrollment set to launch just five months from now, is there concern that the exchanges could wind up failing in much of the U.S.?
A: At last count, 26 states have refused to set up exchanges, which are central to the success of providing access to affordable health care coverage for individuals and small businesses starting in January. This means that the federal Department of Health and Human Services will have to step in and set up a federal version by October, about 5 months from now. Given adequate resources, this can be done, but I’m not optimistic about their success. Maybe they’ll do okay in the long term. We’ll see. Kudos to California, though, for eagerly stepping up to the plate; we established the first state-run exchange to be approved by the feds.
Q: There have been grumblings that the arrival of ACA in full force next year are going to cause premiums to skyrocket. How do you think this will bode for the November 2014 ballot proposition that would give the DMHC and the DOI authority to reject insurance increases?
A: The Society of Actuaries recently predicted health insurance costs in the individual market would increase 32% by 2017. Not good news, especially considering that the blame for this increase was placed at the doorstep of the Affordable Care Act. The Congressional Budget Office similarly predicted that premiums for individual coverage would be 10 to 13% higher than they would be without the ACA. I do believe that continued health plan rate increases will boost support for passage of the health insurance rate regulation initiative on the California ballot next year.
Q: When you headed the Hospital Association of San Diego and Imperial Counties, you gained some renown for saying that elected leaders in San Diego really didn't care if their indigent population dropped dead. That sentiment seemed to have been embraced during some of the early Republican presidential debates, when the audience cheered about leaving someone sick to die on the sidewalk, and Ron Paul said help should not be summoned. Why is there such a large swath of this country hostile to the notion of providing healthcare access to everyone? Will that ever change?
I can say with certainty that my comments from almost 20 years ago do not apply to the elected leaders in San Diego County today.
Having been a victim of medical access discrimination in my childhood, it bothers me whenever more political rhetoric brings back those memories. It’s disheartening to hear cheers instead of outrage from audiences when someone says that we should leave people to die on the sidewalk. I truly believe that the soul of our republic…of any democracy… is measured by how well it takes care of its neediest citizens. I think the opposition to universal coverage is fueled largely by fear that greater government intrusion into health care will lead to a government takeover of healthcare…socialized medicine in the U.S. That fear and, therefore, the rhetoric and opposition it spawns will never go away completely.
Q: Do you believe retail clinics will eventually play a significant role in providing primary care in California? Or do you believe care delivery will evolve as a result of the implementation of the ACA? Will there be enough rapid enrollment in the exchanges and in Medi-Cal to ensure that there is still not a large swath of uninsured in California a year or two from now?
A: Retail clinics have demonstrated their value and are now in the matrix and part of the evolution of the delivery of medical care.
The ACA gave the development of integrated delivery systems a shot in the arm by embracing their utility and giving them a new name, Accountable Care Organizations or ACOs. Fundamental to the success of ACOs is the coordination and care management of enrollees by the medical homes to which they are assigned. So, the growing popularity and use of retail clinics must be factored into developing ACO models, especially if these clinics move beyond providing primary care services to also offer chronic disease management, as Wallgreens has hinted it might do.
The amount of resources being plowed into enrollment outreach for Covered California and Medi-Cal expansion is greater by leaps and bounds than what I can recall ever being deployed for the start-up of a government-sponsored program, so I’m optimistic about California’s success in enrolling our eligible uninsured residents into these programs over the next couple of years. But the ACA left behind large segments of our uninsured population. Led by undocumented immigrants, three million or so individuals residing in California will nonetheless remain uninsured.
Q: What would you say was your greatest accomplishment with HASC? And your greatest frustration?
A: I’m going to leave the grading of my tenure with HASC to others to decide. I will say this, though, I think I added good DNA to the gene pool of thought and decision-making at the highest levels in the organization. I do believe that I made a difference. My greatest frustration is with myself; that I favored the use of Occam’s Razor in my work on healthcare policy issues. I would have been much more successful had I considered what the late H.L. Mencken understood when he said: “There is always a well-known solution to every human problem—neat, plausible and wrong.”
Q: What’s next for you?
A: I am going to concentrate on completing my dissertation for my doctorate in psychology, which should be conferred sometime in early June. What happens next happens after that. I'm looking at a few options, including a consulting practice, especially now that the enactment of healthcare reform is about to shift into high gear.
