THCB

Non-Profit IDNs: Where’s Da Beef?

I have followed this narrative for quite some time albeit inside the industry contained debate of whether so-called ‘non-profit’ [501(c)3] hospitals or their parent systems (really more aptly characterized as “tax exempt”) actually earn this financial advantage via material ‘returns’ to the communities they serve.

As can be expected you have the party line of the American Hospital Association (AHA) a trade group of predominantly non-profit members vs. that of it’s for-profit brethren The Federation of American Hospitals (FAH). You can guess which side of the argument each of them favor.

Now thanks to a recently published landmark study ‘Integrated Delivery Networks: In Search of Benefits and Market Effects’ by Healthcare Futurist Jeff Goldsmith, PhD et al, of the 501(c)3 cast of characters in the related but more often than not distinctly different ‘IDN culture’ we extend that line of inquiry into what has been a somewhat conversational ‘safe harbor of sorts’ – not any longer?

The Executive Summary notes both the rationale and basis to study the market ‘incident to’ a more focused pricing (via asset concentrations) power line of inquiry:

In January 2014, the National Academy of Social Insurance commissioned a study of the performance of Integrated Delivery Networks (IDNs), incident to its Study Panel on Pricing Power in Health Care Markets. The premise of this analysis was that any examination of the role that hospitals play in health care cost growth is complicated by the fact that in most large markets, the significant hospitals are part of larger, multi-divisional health enterprises. In these markets, hospitals may be part of horizontally integrated hospital systems operating multiple hospitals; vertically integrated health services networks that include physicians, post-acute services and/or health plans; or fully integrated provider systems inside a health plan (e.g. with no other source of income than premiums) like Kaiser Permanente. The latter two models are collectively labeled IDNs.

IDNs have very different stated purposes than mere collections of hospitals: to coordinate care across the continuum of health services and to manage population health. IDN advocates claim that these complex enterprises yield both societal benefits and performance advantages over less integrated competitors. The purpose of this analysis is to evaluate the evidence to support these claims.

And now for the less than surprising but wholly unacceptable answer albeit modestly caveatted by the limits of publically available information:

Despite more than 30 years of public policy advocacy on behalf of IDN formation, there is scant evidence in the literature either of measurable societal benefits from IDNs or of any comparative advantage accruing to providers themselves from forming IDNs. We have similarly found no such evidence in our analysis of 15 IDNs. Serious data limitations hamper anyone attempting to evaluate IDN performance based on publicly disclosed information. IDN financial disclosures obscure the operating performance of their hospitals and physician groups.

There does not appear to be a relationship between hospital market concentration and IDN operating profit [emphasis mine]. However, if the performance of the IDN’s flagship hospital is any indicator of overall systemic efficiency, the IDNs’ flagship hospital services appear to be more expensive, both on a cost-per-case and on a total-cost-of-care basis, than the services of its most significant in-market competitor.

This runs counter to the theoretical claim of IDN operating efficiency. Further, the flagship facilities of IDNs operating health plans or having significant capitated revenues are more expensive per case (Medicare case-mix adjusted) than their in-market competitors.

The authors would have greater confidence in these findings if they covered not only multiple years of information but also multiple institutions in the IDN portfolio (e.g. its suburban or rural hospitals, etc.). Further, the central question of whether IDNs have abused their market power in metropolitan markets can only be answered by examining actual service-specific payments to their hospitals by local health plans and by determining the profits generated by their hospital portfolio.

I am struck by the reaction or better yet absence of a reaction in public discourse let alone in health wonk or big data evangelists circles particularly at time when there’s been so much mis-direction and battle fatigue surrounding the endless debate/efforts at repeal of the Affordable Care Act.

Such a profound observation and ‘counter intuitive’ result (i.e., ‘hey, there may not be a there, there insight’) based on frequent accolades and ‘innovation’ recognition extended to such trophy name plates as Kaiser Permanente, Geisinger Health, InterMountain Health and so little public debate (see complete list) causes me to question whether we’re paying attention to what matters?

How can we intelligently debate, discern and buildout the qualities and characteristics of financing and delivery system platform efficacy and business model innovation that delivers on the triple aim and lays a solid foundation for a sustainable healthcare economy if we do not understand their root DNA and the results (“community benefit”) they ostensibly generate?

Anyone?

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2healthguruJeff GoldsmithfsgoldsteinmaggiemaharVinceKuraitis Recent comment authors
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2healthguru
Member

Is there a there there for ‘non-profit’ IDNs? Interesting exchange! @vincekuraitis @maggiemahar, @fsgoldstein on @socialinsurance via Jeff Goldsmith

Jeff Goldsmith
Member
Jeff Goldsmith

Vince is right. They are conglomerates, not integrated enterprises. We review what is known about the economics of conglomerate style diversification, both inside and outside healthcare, in our lit review. There are not a lot of economic benefits, particularly for customers. But the special point about the IDN’s diversification model: being in businesses with diametrically opposite incentives (health plans and provider businesses like hospitals) MAGNIFIES business risk, not reduces it. That’s why we believe the laughably inadequate financial disclosures these organizations make are not sufficient for bondholders and their advocates to understand their investment risk. This is a religious movement,… Read more »

fsgoldstein
Member

Thanks Gregg for bringing this issue up. We have a system that is still built around financial outcomes and sustaining it even while the system says its about the patient or community. While people may say that Kaiser has better outcomes, if the IOM is correct, that 30% of healthcare cost is waste fraud and abuse (and most believe the IOM is correct); I stand waiting for the IDN, CDN ACO, Kaiser and/or any other system to come in at 20% less than their competitors by fixing the first thing every group should be attacking, themselves. Why can’t these systems… Read more »

maggiemahar
Member

Let me add that if “the IDNs’ flagship hospital services appear to be more expensive” this is
often because it is focusing not the long-term health of patients. This certainly true of Kaiser Permanente. It is not the cheapest insurer in California, but when you look at outcomes you see that patients are getting better value for health care dollars. And over the long-term,
that means that you are going to be cutting total health care costs.

maggiemahar
Member

First, Vince is right: it takes time to create an integrated system. It’s a matter of creating a culture. What is important is not simply how it’s organized, but who is doing the organizing. Is it collaborative? Is it team-based? Is it evidence-based? Without question, Kaiser Permanente, Group Health Cooperative of Seattle, and other established integrated systems have proven that they can offer greater value for healthcare dollars– better outcomes, higher patient satisfaction, and higher doctor satisfaction. Less doctor turnover, less patient turnover. Over time, they can improve the health of a large group of patients. For example, Kaiser has… Read more »

Jeff Goldsmith
Member
Jeff Goldsmith

Maggie, The difference between Group Health/Kaiser and the entities we looked at is simple: Group Health/Kaiser’s sole source of income is health insurance premiums. They manage their provider businesses inside the global budget created by multiplying premiums against subscribers. Kaiser isn’t making its margins selling MRI’s out the back door to commercial payers and individuals for $3500 apiece. Even the organizations in our sample with over half their revenues coming from premiums hold the insurance risk in the insurance subsidiary and pay their docs on an RVU basis. Sorry, but that’s not managed care. Read our report. It’s both thorough… Read more »

VinceKuraitis
Member

Gregg, Nice summary. Agree, definitely worth raising the point that the while the IDN value proposition is intuitively appealing, there isn’t a lot of evidence to back it. I’ll add my own frame, some of which comes from having myself worked for 10 years in a hospital system that stretched to become an IDN. In the 1990s when the term IDN came around, the “integration” was purely about FINANCIAL integration…CLINICAL integration for the typical hospital was neither structurally feasible nor aspired to. Yes, there are truly some CLINICALLY INTEGRATED systems — as you point out Geisinger, Kaiser, Intermountain…a few others.… Read more »

sceconomist
Member

The tax status doesn’t mean a health care provider isn’t a monopoly. Horizontal and/or vertical its a monopoly…limiting output and increasing prices. This is just basic micro-economics.