There is lots of talk of disruption in healthcare particularly involving new entrants and weird combinations such as the CVS-Aetna merger, CIGNA and Express Scripts, Amazon Berkshire Hathaway and J.P. Morgan, and now Wal-Mart and Humana all claiming to transform healthcare. At the same time, we are seeing continued consolidation in the traditional healthcare industry with hospital systems merging at the local, regional and national level.
The rise of consumerism is affecting healthcare particularly the retail/primary care area where consumers are spending with their own money in a world of high-deductible healthcare.
The growth of digital health offers the opportunity to disrupt traditional care interactions in both the management of chronic conditions and in routine primary care. And there is a whole new set of patient decision-makers such as millennials who bringing with them different sensibilities in terms of access to services.Continue reading…
With healthcare mergers now announced seemingly every week, I’ve been giving some thought to scale: How big can/ should health systems be?
Anecdotally, I’m struck that the most impressive healthcare companies in America are super- regional players: Geissinger, Cleveland Clinic, UPMC, etc. They seem to get a lot more attention than the national players with hundreds of facilities.
Leaving aside questions like strategy (e.g. is integration of payers/doctors/hospitals the key to these successes), I’ve wondered whether regional systems are simply the right size to thrive. My suspicion is that even clever organizational structure (a topic which I wrote about last year) can’t overcome barriers that prevent large healthcare companies from innovating and thriving, particularly as companies move to risk and the business of healthcare becomes more complex. Like cellular organisms, large companies can outgrow their life support. (Interestingly, it’s actually the ratio of body volume to surface area [gas exchange, digestion, etc] that served as a constraint to organism size…)
I recently ran across a superb paper- a doctoral thesis written by Staffan Canback. Canback (who now leads the Economist Intelligence/ Canback predictive analytics consulting firm in Boston) wrote his thesis, called Limits of Firm Size: An Inquiry into Diseconomies of Scale in 2000, while a student in London. Canback argues, convincingly, that companies do become more efficient with scale, but reach a point where “diseconomies” begin to mitigate performance. This may seem intuitive: (as Canback notes, if efficiency only improved with scale then we would buy everything from one company that produces everything with great levels of efficiency). We don’t.
On a recent shift in the Emergency Department, a resident boasted to me that she had convinced a patient to have an MRI done after discharge, rather than in the hospital. She was proud of this achievement because MRIs cost much more in the hospital than they do elsewhere – sometimes thousands of dollars more. To advocates of “cost-conscious care,” a new movement in medical education that aims to instill in young doctors a sense of responsibility for the financial consequences of their decisions, this story seems to belong in the ‘win’ column.
But this story also raises troubling questions: Why wasn’t the resident more concerned about how the hospital’s charging practices were leading her to delay care for her patient? What about the prolonged anxiety the patient would suffer? What about the extra day of work she would have to miss? And most importantly, why does an MRI cost thousands of dollars more in the hospital than it does across the street?
Like many doctors, she had fallen into the ‘transparency trap.’ This phenomenon is an unintended consequence of price transparency efforts that have come in response to patients and doctors being kept in the dark for decades about the prices of common services. Unfortunately, as the CEO of one large hospital put it, “the vast majority of [prices] have no relation to anything, and certainly not to cost.” In fact, studies have shown that in a functional market, MRIs would cost somewhere around $250, and we wouldn’t be nearly as concerned about doing too many of them.
By the end of 2013 there were approximately 1.5 million people in state or federal prisons, and the U.S. incarceration rate is the highest in the world. And while there is debate about the relationship between this level of imprisonment and crime rates, there is considerable research to show that a spell of incarceration exacerbates economic and social conditions for families as well as former inmates, especially in low-income neighborhoods. That has led the Obama Administration and some interesting strange-bedfellow groups to call for alternatives to prison for some infractions.
The other side of the prison coin is recidivism. Prisons are often called “correctional facilities” but that is a cruel joke – they do a dismal job in turning lives around. According to the U.S. Department of Justice, about two-thirds of released state prisoners were re-arrested within three years and three-quarters within five. Prison is a revolving door.Continue reading…
It’s time to toss the whole business-as-usual model — for your own good and the good of your customers.
The emerging Default Model of health care — the “consumer-directed” insured fee-for-service model in which health plans compete to lower premiums by bargaining providers into narrow networks — not only does not work for health care’s customers, it cannot work. This is not because we are doing it wrong or being sloppy. By its very nature the Default Model must continually fail to bring our customers what they want and desperately need. Ultimately it cannot bring you, the providers, what you want and need.
Take a dive with me into the real-world game-theory mechanics of the health care economy, and you will see why. It’s time to rebuild the fundamental business models of health care.
Health care is fragile. It survives in a much narrower band of circumstances than most of us realize. Right now many hospitals and systems are having a second down year in a row. They’re consolidating, laying off people, working through major shifts in strategy — all because of what we must admit (if we are honest) are relatively minor economic shifts, such as small reductions in utilization and Medicare payments, a blunting of accustomed price rises, and stronger bargaining from health plans.
If minor revenue stream problems put your entire institution in jeopardy of chaotic deconstruction, it cannot be called robust.
At the same time, an increasing number of vectors outside the sealed world of health care could overwhelm and kill your institution, from climate chaos to pollution disasters to epidemics and the loss of antibiotics.
Everywhere we turn these days it seems “Big Data” is being touted as a solution for physicians and physician groups who want to participate in Accountable Care Organizations, (ACOs) and/or accountable care-like contracts with payers.
We disagree, and think the accumulated experience about what works and what doesn’t work for care management suggests that a “Small Data” approach might be good enough for many medical groups, while being more immediately implementable and a lot less costly. We’re not convinced, in other words, that the problem for ACOs is a scarcity of data or second rate analytics. Rather, the problem is that we are not taking advantage of, and using more intelligently, the data and analytics already in place, or nearly in place.
For those of you who are interested in the concept of Big Data, Steve Lohr recently wrote a good overview in his column in the New York Times, in which he said:
“Big Data is a shorthand label that typically means applying the tools of artificial intelligence, like machine learning, to vast new troves of data beyond that captured in standard databases. The new data sources include Web-browsing data trails, social network communications, sensor data and surveillance data.”
Applied to health care and ACOs, the proponents of Big Data suggest that some version of IBM’s now-famous Watson, teamed up with arrays of sensors and a very large clinical data repository containing virtually every known fact about all of the patients seen by the medical group, is a needed investment. Of course, many of these data are not currently available in structured, that is computable, format. So one of the costly requirements that Big Data may impose on us results from the need to convert large amounts of unstructured or poorly structured data to structured data. But when that is accomplished, so advocates tell us, Big Data is not only good for quality care, but is “absolutely essential” for attaining the cost efficiency needed by doctors and nurses to have a positive and money-making experience with accountable care shared-savings, gain-share, or risk contracts.
Remember Flower’s Laws of Behavioral Economics? The first two are:
People do what you pay them to do.
People do exactly what you pay them to do.
That is, it’s not general. It’s not “be a good doctor.” It’s more like, “Do lots of complex back fusion surgeries.” What’s more profitable gets done more.
I know that some people say that money has nothing to do with people’s motivation in healthcare, and that’s fine, I totally respect that opinion. You’re just in the wrong section. You want Aisle C, between Dr. Seuss and the Disney fairy tales.
But what about healthcare executives? What gets them more money? What constitutes hitting it into the cheap seats for them?
There are of course lots of compensation surveys. There’s a whole industry of people who do that. But they don’t tie compensation to anything specific. So when someone does a study that does look at correlations, that’s interesting information. One came out a few months ago in JAMA’s Internal Medicine .
Karen Joynt, MD, and her colleagues used 2009 data, so things might be beginning to change now. And they only looked at CEOs, so we will have to speculate whether the same things apply to other C-suite suits.
What did they find? They found great variation in the salaries, with a mean (average) salary of $595,781, a median (half are above and half below) of $404,938). The nearly $200,000 difference tells us that the sample is skewed by a smaller number of really large salaries at the top.
There is nothing surprising in the size of the salaries or their variation. That’s normal for any industry. No matter how much you might think that healthcare is special and different and sacred, it is nonetheless a very big business. In many or most towns, the hospitals and health systems are the biggest businesses in town. A typical suburban three-hospital system might have an annual budget in the $5 billion range.
What correlates with a higher salary? Size.
More beds means a higher salary ($550 for each extra bed, to be exact). Teaching status means $425,078 more — in other words, doubling the median. And most teaching hospitals are much bigger than average. Urban location gets you more, but this is likely also a marker for size, or the cliché phrase “big city hospital” wouldn’t roll off the tongue so easily. High tech gets you more, too. Hospitals with high technologic capabilities paid their CEOs $135,862 more than hospitals with low levels of technology — but this again is likely a marker (a co-variate) for size and teaching status.
In the name of patient privacy, the U.S. Department of Veterans Affairs allegedly threatened or retaliated against employees who were trying to blow the whistle on agency wrongdoing.When the federal Health Insurance Portability and Accountability Act passed in 1996, its laudable provisions included preventing patients’ medical information from being shared without their consent and other important privacy assurances.But as the litany of recent examples show, HIPAA, as the law is commonly known, is open to misinterpretation – and sometimes provides cover for health institutions that are protecting their own interests, not patients’.
“Sometimes it’s really hard to tell whether people are just genuinely confused or misinformed, or whether they’re intentionally obfuscating,” said Deven McGraw, partner in the healthcare practice of Manatt, Phelps & Phillips and former director of the Health Privacy Project at the Center for Democracy & Technology.For example, McGraw said, a frequent health privacy complaint to the U.S. Department of Health and Human Services Office of Civil Rights is that health providers have denied patients access to their medical records, citing HIPAA. In fact, this is one of the law’s signature guarantees.”Often they’re told [by hospitals that] HIPAA doesn’t allow you to have your records, when the exact opposite is true,” McGraw said.
I’ve seen firsthand how HIPAA can be incorrectly invoked.
In 2005, when I was a reporter at the Los Angeles Times, I was asked to help cover a train derailment in Glendale, California, by trying to talk to injured patients at local hospitals. Some hospitals refused to help arrange any interviews, citing federal patient privacy laws. Other hospitals were far more accommodating, offering to contact patients and ask if they were willing to talk to a reporter. Some did. It seemed to me that the hospitals that cited HIPAA simply didn’t want to ask patients for permission.
When the Cleveland Clinic announced job and expense reductions of 6% in 2013, the healthcare sector took notice.
Did the world-renowned hospital and healthcare research center, with 40,000 employees and a $6 billion budget, really believe it did not possess the heft to take on the increasingly turbulent sea changes in American healthcare? Or was this yet another stakeholder using Obamacare as cover to drive draconian change?
Both sides of the political aisle were quick to make hay of the announcement, with conservatives blaming reform for eliminating jobs while liberals questioned the timing of the cuts when the Cleveland Clinic was posting positive growth. The answer from Eileen Sheil, corporate communications director, was apolitically straightforward: “We know we are going to be reimbursed less.” Period.
The question of reimbursement reform and the unintended consequences of the Affordable Care Act are weighing on the minds of hospital executives nationwide as independent, regional and national healthcare systems grapple with a post-reform marketplace. The inevitable conclusion that the unsustainable trend in American healthcare consumption is now at its nadir seems to have finally hit home.
These days, America’s hospitals are scrambling to anticipate and organize around several unanswered questions:
How adversely will Medicaid and Medicare reimbursement cuts affect us over the next five years?
Can we continue to maintain our brand and the perception that any employer’s PPO network would be incomplete without our participation?
Can we become a risk-bearing institution?
Can we survive if we choose not to become an accountable care organization (ACO)?
Will the ACO model, by definition, cannibalize our traditional inpatient revenues?
Can we finance and service a hard turn into integrated healthcare by acquiring physician and specialty practices?
Go It Alone or Join a Convoy?
Mergers and acquisitions remain in high gear in the hospital industry—“the frothiest market we have seen in a decade,” according to one Wall Street analyst. “Doing nothing is tantamount to signing your own death certificate.”
Many insiders believe consolidation and price deflation is inevitable in healthcare. Consolidation, however, means scarcity of competition. If we operate under the assumption that scarcity drives costs higher, we may not necessarily feel good about consolidation leading to lower costs unless mergers are accompanied by expense cuts that seek to improve processes, eliminate redundancies and transform into a sleeker, more profitable version of one’s former self.
Bigger may not always be better, but bigger seems to have benefited a select group for the last decade.