Monday, June 15, 2009

Are monopolies the answer?

A little more on Clayton Christensen's view of the health care world, as set forth in The Innovator's Prescription. I have noted below his conclusion that general hospitals do not have a sustainable business model. He is persuasive on this point. What's the solution? Here are the key elements, from page 198 of the book.

[E]ntities that could integrate a new value network are large providers that create and knit together underneath their corporate umbrellas all of the necessary elements of the new value network. There are several important characteristics of such integrated health systems.

First, they operate their own insurance and payments systems. Patients or purchasers in the system pay a fixed fee, typically yearly, that covers the cost of all care they might need. Second, the physicians are essentially employees of the system, not independent businesspeople. Third, the caregiving institutions in the system are apt to use focused business models…. They can operate a limited number of general hospitals, while rationally siphoning work out to coherent solution shops and value-adding process clinics, outpatient clinics, and even retail clinics. And they have created and operate an information system that glues these different providers together to properly coordinate care. Finally, these firms are large employers themselves.


Among the success stories that fit this model and have attracted the attention of the Obama administration is the Geisinger Health System in Pennsylvania. My friend and colleague Glenn Steele runs the place, and it is in fact, a marvelous system with lots of innovation, truly pursuing wellness of patients and minimization of cost as a business strategy. What does it have about which I am envious? A virtually monopoly in its service territory and its own insurance company.

As some of you know, I used to run the regional water and sewer system in Eastern Massachusetts. Among the things I liked best: I was providing an essential public service, I had a monopoly, I could set my own prices, and people had to pay.

There are a few parts of the country in which a similar system exists for health care. For most of the country, this is not the case. If we want to create such entities, who will decide how many there should be and who will control them?

8 comments:

Lee said...

Really does make life easier when you have a captive audience. You can turn the screws as much as you want, and the only choice is to accept it. It works so well for the DMV, Medicare/Medicaid, and schools that doing the same thing for health care will make the system just as good.

I hope your post is sarcastic. If not I think you should get out of your current regulated industry and go work in a relatively unregulated industry and see how competition really does work.

Paul Levy said...

Not sure what you mean, Lee. The point I make about ACOs is not at all sarcastic. If the government wants to create these monopoly-like structures, who will hold them accountable?

Perhaps we are agreeing?

Gregg Masters said...

In complete agreement with author's argument! This definitely fits the mantra offered by Atul Gawande in his "Health Care Cost Conundrum" piece in the New Yorker earlier this month.

Gawande frames the debate by asking who will be the 'anchor tenant' in medicine; while he contrasts the cost per Medicare beneficiary profile between Mc Allen Texas and other markets. He also goes on to suggest that the 'Mayo's' of the world (which by definition include Geisinger, Kaiser/Permanente, and other integrated - both financial and clinically systems) are losing the anchor tenant battle.

Lets hope not!

Thanks Paul. We are going to witness a second hundred days of the Obama tenure that is likely to scale the 'HillaryCare' drama exponentially.

Integration aka 'managed monopolies' is a large part of the solution based on our current finance and delivery paradigm's architecture. Yet, there is more to the story not to mention the direct practice model and emerging boutique, concierge and retainer based approach in tandem with HDHPs.

We have a way to go. I can't rule out that Obama may not come to know the despair of HillaryCare in the white waters of healthreform; he (we)faces a challenge like no other!

John Greenbaum said...

If Mr. Christiensen is correct in his notion that general hosptials are an unsustainable model, then is the future of community hospitals even more untenable? Given that their mission is to serve a local population without the intention of advancing the practice of medicine can we expect them to survive in the long term? Perhaps aligning around with a focus on specific local skills and partnering with an academic medical center will insure their survival.

Lee said...

Perhaps so. The last thing I want is the government to run health care top to bottom. They're not even that far with Medicare/Medicaid it's a complete disaster. What I want to see is the government to get out of health care.

I live in New York and there is no such thing as private health care. NYS has regulated the health care industry so much you can't tell where Albany stops and the private companies start. It makes me wonder how much cheaper and better health care would be in NY if Albany would just stop meddling.

It's sad when NY citizens cheer when their state government is paralyzed and grinds to a halt. If the masses only knew how far NY's hand is up the medical industry's backside they might decide enough is enough.

fairhavenhorn said...

I had several immediate reactions.

First, was to recognize the siren call of the all knowing all powerful beneficent leader. It's tempting, but the siren's call has consequences.

Second, was to think about the difference between water and healthcare in terms of goals and ability. The ideal goal for a water system is to provide pure safe water to every location in unlimited quantities for no cost. The actual ability of current technology is less but we can deliver pure enough water in sufficient quantity for acceptable cost.

The ideal for healthcare is to eliminate all disease and illness, and repair all injuries fully at no cost. We are not even close. The really big disease elimination was the introduction of water and sewer. (See, you've been in healthcare for years. :-)) Then there was the slow bump with the introduction of immunizations. Now there is a very long slow slog dealing with all that is left.

We do not know how to get close to the ideal, nor even what path takes us in that direction. That is a large part of the nature of the healthcare problem. We don't know what next steps will improve the situation.

Third reaction was around monopolies and semi-monopolies. Medicare, VHA, and Indian Health Service are three huge monopolies. Kaiser and Mayo are two large competitive providers. Each has taken very different strategies. None is considered close to the ideal. None is held out as the clear answer for the next target. They all have major successes and major flaws.

Aron B said...

From your description of Christensen's ideas, it doesn't sound like monopoly is a requirement for his ideas, it's just the only area where we see these kinds of integrated value networks today.

That said, it seems to me that the major requirement is not monopoly with respect to the patients (you can always compete for patient dollars, especially if you're reducing costs and improving quality), but monopsony with respect to the doctors - that is, Geisinger is the only one buying doctors' services, so they can put them on salary and have a great deal more influence over the doctors' behaviors.

Does this ring true? Are there examples of Mass. hospitals that have salaried doctors (other than the VA!)? If not, why not? Are salaried doctors the key to building a truly integrated value network?

It has always seemed to me that doctors are the real key to cost containment, but no policymaker is willing to propose or implement frameworks that adversely affect this powerful (and well-liked) constituency.

Engineer on Medicare said...

Paul Levy said: I used to run the regional water and sewer system in Eastern Massachusetts. Among the things I liked best: I was providing an essential public service, I had a monopoly, I could set my own prices, and people had to pay.

That is a scary prospect. Think of the Massachusetts Turnpike Authority running the "Big Dig": Massive cost overruns, quality problems with slurry walls and concrete, and death from falling roof panels. Think of unions of tenured teachers effectively running most educational programs. Think of AMTRAK with costs per passenger far greater than the cost of a ticket.

Find a way to apply competition and efficiency to health care.