In a recent article about the Cleveland Clinic in the New York Times, it was reported that it was broadening its mission (see: Cleveland Clinic Grows Its Inpatient Volume; Relatively Unique Business Model) to include more primary care and services to underserved population in Cleveland (see: Cleveland Clinic Grapples With Changes in Health Care). Not surprisingly, the Cleveland Clinic executives are also grappling with the cost of care in the face of declining reimbursements from governmental programs and increased attention to the cost of care from the health insurance companies. This is a problem common to all hospitals both big and small. Here's a quote from the article discussing how the chief financial officer of Cleveland Clinic views the financial situation:
The Cleveland Clinic must also figure out how to deliver care less expensively. As they develop narrow networks, private insurers are dropping hospitals that they consider too costly or poor-quality care providers. While the details remain vague, Medicare has announced plans to tie as much as half of its payments to value or quality payment models by 2018. Regardless of what happens, “the challenge still points to making health care more affordable,” said Steven C. Glass, the clinic’s chief financial officer. The clinic cut expenses by roughly $500 million last year. The system is avoiding unnecessary lab tests, for example, and performing a hip replacement for $1,500 less than it did two years ago by standardizing the devices used and using less blood and other supplies, all, it says, without sacrificing quality. Its doctors are typically on salary, making it much easier for the clinic to work with them to figure out how to better care for patients.
I can't think of many cases where a hospital with a reputation for delivering highly sophisticated tertiary care has extended its mission to include primary care, particularly for underserved populations. I must admit, however, that this make sense given the critical niche the Cleveland Clinic fills in Cleveland and Ohio. It could also have a public relations problem if it only served the insured and the affluent. This broadening of mission will reinforce the need to cut costs -- no hospitals improve their economic outlook by expanding primary care and services to underserved populations.
In the light of all of this, a recent note I posted about the new relationship between Cleveland Clinic and Theranos makes even more sense (see: Cleveland Clinic Develops Business Partnership with Theranos). Theranos claims on its web site that the charges for its broad test menu offered in Walgreens drug stores are always less than 50% of published Medicare rates. We need to take such a statement with a grain of salt because many Silicon Valley startups provide services at less than their cost, or even free, in order to gain a toehold in the market. Nevertheless, the new relationship between the Clinic and Theranos will certainly enable the Clinic to assess whether this low-cost claim by Theranos would hold up in a hospital environment.
As I have stated many times before, lab testing is the best bargain in healthcare today. Typically a hospital expenditure for all of its lab services amounts to about 5-6% of the its operating budget. Recall that lab test results come into play for some 70% of all diagnoses. Lab test results often play a key role in the ordering of other diagnostic procedures such as imaging. Reimbursement for inpatient care is fixed and based on the diagnosis of a patient so the labs are a cost center. If the Cleveland Clinic were to determine that, using the Theranos technology, it could shave two or three percentage points from the overall cost of the clinical labs, this would have a major impact on the cost of care. Clinical lab testing would become even a bigger bargain than it is today.