Sunday, January 25, 2009

Feeling small


I write this post with a bit of temerity that it will prompt all kinds of defensive reactions, but I am not doing it to criticize the protagonists -- rather to give an example of the kinds of market forces at work here in eastern Massachusetts. I am actually not sure as to whether the moral of the story is "That's life. Get used to it" or "This is an unsustainable situation." I let you be the judge and offer comments.

For the last several months, I have been hearing from friends at Norwood Hospital, a small community hospital south of Boston affiliated with the Caritas Christi system, that they were really afraid of a new ambulatory care center being built nearby by Partners Healthcare System for their flagship hospitals, MGH and Brigham and Women's. I frankly attributed the concerns to the usual kind of overstated fears you often get in this business, and so I discounted them.

Then, this past Friday, I was in Foxboro at Gillette Stadium to give a speech to a group of hospital finance people, and I was stunned to see a very large building (pictured above) adjacent to the stadium. I later checked it out and learned that the new center is 75,000 square feet and will offer the following specialties: Primary Care, General Surgery, Plastic Surgery, Orthopaedic Surgery, Cardiology, Cardiac Diagnostics, Dermatology, Diagnostic Imaging, Women’s Health, Rheumatology, Rehabilitation Services including Cardiac Rehab, Physiatry and Pain Management.

I now understood why my colleagues at little Norwood Hospital were nervous. Their website says they offer the following services, among others: Surgery, Obstetrics, Cardiology, Dermatology, Radiology, Neurology, Orthopaedics, Gastroenterology, Cancer Care, and Pediatrics. Not a complete overlap, but quite a bit.

As you can see on the MapQuest graphic, the two facilities are merely 8.5 miles apart, making them indistinguishable to many patients in terms of transportation access. Since insurance companies pay community doctors in the Partners system substantially more than those in the Caritas Christi system, it will be easier to recruit physicians to offer services in Foxboro than in Norwood. Does this difference in reimbursement rates reflect a documented difference in the quality of care between the community-based doctors in the two systems? No.

Now, let's acknowledge that MGH and the Brigham are powerful brands. To the extent patients are influenced by that reputation or other factors to migrate to the PHS facility from Norwood Hospital, the overall health care bill for the state will rise for no documented additional value to those patients or society.

The Boston Globe recently reported about similar expansions by PHS to the west and north of Boston. As I have said before, I offer no criticism about the business accomplishments of any hospital system. But when a differential in reimbursement rates that has no basis in quality or outcomes creates a market opportunity for one system vis-a-vis all the others, the effect is simply to raise overall costs to society.

15 comments:

e-Patient Dave said...

> the effect is simply to raise overall costs to society

Well, as others have said, one effect of raising overall costs to society is to make it more difficult to provide coverage for all.

And then observers say "See, the Massachusetts experiment isn't working."

No small issue, in my view. I hope people who want to speak up about this issue have read Daschle's book (and many other such writings) to understand the horrible human cost and financial disasters that have befallen people who lose health coverage. This is no small issue at all. People who've worked hard all their lives get RUINED by that.

This is not just business. There is a real human cost to this.

Anonymous said...

You have been very gracious by saying we should not fault Partners for their execution of a good business plan.

How come the physicians from Tufts, BI, Umass ....don't speak up and rally against this unfair reimbursement process?

Do you really think that the people in the statehouse have the ability to hire the correct people to be able to prove or disprove that Partners is engaging in anticompetitive practices?

When I see no legal or other action other than newspaper articles being taken by the physicians or hospitals I have to wonder is there really a problem??

Anonymous said...

Damn straight, Paul. Nothing against Partners per se, but the picture you describe is that of 1990's capitalism run amok. Someone once said that capitalism is a great way to build a society, but inadequate to sustain it. (Witness the fallout from our unregulated financial systems.) Next steps, fellow citizens?

Anonymous said...

This is precisely the reason why many of us think we need more government regulation and planning of capacity, Paul. Two decades of unbridled competition are creating all kinds of expensive services in all kinds of places where they are not necessary and are going to compete with lower cost alternatives.

Keith said...

Time will tell, but there really are three possibilties-
either Partners is the 1000 lb gorilla out to destroy all in its path;
or assuming there is no difference in quality, Norwood has little to fear given the population of the South Shore market where, again assuming quality is equal, Norwood, Partners running an ambulatory care/day surg facility (even a large-ish one), and even South Shore should be able to coexist;
or if there is a quality difference afterall (real differences or perceived differences), then this is an opportunity to improve their programs and/or change perceptions.

I think it'll be interesting in a year to look at Norwood's patient census numbers and comparable procedure numbers and compare pre- and post-Partners Foxboro, reimbursement rate differences aside for now.

Does anyone here have any of these kinds of numbers to look at suburban institutions with which Partners may already be competing directly in a similar way? of Dana Farber? or even Beverly Hospital... has their ambulatory facility taken any business away from other North Shore Hospitals (we'll see what might change on the North Shore again when MGH on Route 128 Peabody/Danvers opens)?
If so, that might be a good place to start a comparison.

Fear of the unknown is always discomforting, so let's try to look at numbers whenever we can rather than implication and conjecture, which goes both ways.
Thanks Paul.

Barry Carol said...

I think the best way to push back against an entity like Partners with sufficient market power to extract significantly higher payments for comparable (or even worse) quality is to adopt some variation of reference pricing. That is, insurers would cover what the procedure would have cost at the least costly facility in the region that could provide comparable quality and make the patient pay the difference. To take an example from prescription drugs, if I can buy simvistatin for $6 per month while Zocor costs $140 per month, why should insurers or taxpayers pay more than $6 when both the generic and the brand name version are exactly the same? My answer is that they shouldn’t. If someone wants to go to a Partners facility because it is a well known and respected brand name, let them pay the difference in cost. If the patient insists on Zocor over Simvistatin, let him or her pay the extra $134. If this is tiering that the wealthy could afford while the rest of us can’t, so be it. Incentives matter and they matter a lot. Right now, they’re all wrong.

Anonymous said...

I am confused. I have read notices in my local newspaper about health facilites looking to expand and having to hold hearings. I thought somehow DPH had to approve all new facilities and there had to be proof of need for the services. Perhaps someone who is in the know (Paul Levy or others with a similar background) can explain this to me. I wonder how many new outpatient centers we can support. Won't this have a more drastic effect on the local hospitals than the numbers indicate when these outpatient procedures are lost to outside facilities? Thanks in advance for taking the time to explain how this works

Will said...

I've been reading a lot about the different reimbursement rates in your blog, the Boston Globe Spotlight report and in the news in general. I was quite amazed to hear how complicated it was. For a good primer on Health Care costs I came across this in the NYTimes the other day. Thought others might find it helpful (copy & paste). http://economix.blogs.nytimes.com/2009/01/23/how-do-hospitals-get-paid-a-primer/?emc=eta1

The Medical Quack said...

Here's a somewhat related story on what happened here in Orange County, CA last year in my back yard, but 2 very different organizations, 30% of the patients left.

http://ducknetweb.blogspot.com/2008/10/tenet-subsidiary-announces-closing-of.html

Anonymous said...

I thought competition was a good thing? Or is the debate changing direction, at the rate of an oil tanker, towards the true cost of American health care - the human cost.

W. Sell said...

A variation on this same theme of Partners expansion is the recently anounced plan by Newton-Wellesley to open a four suite surgical unit in Framingham, right by the Mass Pike exit 13. It's about 5 mins from MetroWest Medical Center in Framingham, and 10 mins from MWMC in Natick. Lots of overlap. Might it drive down prices, like all good competition should, sure. But enough to matter? No way. I'd venture it will be built, just like Foxboro, Peabody, Waltham and the rest of the satellite clinics. Eventually we will have Partners in 30 sites and a couple of local independents. Between now and then - Partners will need to buy a few existing sites, like maybe the Caritas network... A quick boost to market share.

Anonymous said...

To Anon@9:28am & Anon@9:45am-I ask you, what "unbridled competition?" If there was competition in Massachusetts, do you really think Partners could charge the significantly higher prices they charge? In the 1990s, the merger between MGH and BWH went through uncontested by the DOJ despite their size (near as I can tell from various testimonies, including a statement by Charlie Baker who was the Secretary of Health and Human Services in 1994 and signed off on the initial merger). The DOJ was working to halt similar for-profit mergers around the same time, but somehow, non-profits seemed to slip through. Also, in order to build a health care facility or one providing health care services in Massachusetts, you need something called a "Certificate of Need." Here, the government--not the market--decides whether or the not the market needs another such institution. I don't exactly call that an unregulated market. Still, people clamor for regulation, and yet, it will be the same regulation whose divine intuition led to the construction of the Norwood Hospital.

To conclude, it concerns me both when economists attempt to tell doctors how to practice medicine (aka, Daschle's Federal Health Board) and when doctors try to tell economists that there is a free, unregulated market in health care, particularly in Massachusetts.

catsandmusic said...

One of the advertisements is at the Norwood commuter rail stop, which overlooks Caritas Norwood Hospital.

Anonymous said...

You may not be offering criticism of their business accomplishments but you are following your own business strategy of shining a light on this issue in an attempt to level the playing field.

Anonymous said...

Both Partners and Beth Israel have been able to obtain higher reimbursement rates from the major health insurers. They have then been able to use these higher fees to attract community primary care doctors to join their respective networks. The end result is that patients get referred to high cost teaching hospitals instead of lower cost community hospitals.
Community based physicians (like myself) are unable to attract new associates since we get paid lower rates and have to offer lower salaries. We also have the "privilege" of covering the ER on weekends while elective cases get referred to the downtown hospitals
There is no demonstrable change in care when a community doctor joins one of the large networks only a change in referral patterns.