Monday, January 31, 2011

Tectonic forces at work

We are about to witness the clash of two tectonic plates in health care. The creation of Accountable Care Organizations, combined with a movement towards capitated and other types of bundled payments, will be forces towards integration of care across the continuum. From primary care to tertiary care to skilled nursing and rehabilitation, principles of care management will combine with financial incentives to create ever more concentration in the health care market. Proprietary electronic medical records systems and "captive" doctor organizations will work towards reducing consumer choice in this new environment.

You already see health care companies engaged in this and advertising it as an attribute. Here, for example, one company notes: [Q]uality care is not just about the care in one institution – it’s what happens between institutions. And if we don’t pay close attention to those gaps – which means measuring and acting to improve the information flow – the patient will suffer. (And, you already see health care companies engage in deceptive behavior with regard to referrals, too, like here.)

Yet, at the same time, patients and their advocates will be demanding more choice. Fully trained in consumerism in other fields, they will expect the same in health care. They will want internet-based transparency of clinical outcomes, along with tons of disease-specific information, so they can seek out and obtain the best possible care for themselves and their loved ones. They will press captive doctors to allow them to be referred to out-of-network health care companies that appear to provide better, safer, and/or more compassionate care.

How will this crash of the tectonic plates be resolved? One answer is to ignore consumer preference and rely on monopoly-like organization of care. We know from other fields, however, that this not only results in monopoly pricing, but it slows down innovation. Think of the Bell System in years past, which provided integrated service, from telephone instruments to long distance calling. Many people alive today do not know that the Bell System conspired to limit people's choice to the extent that you were not allowed to connect a non-Bell telephone in your house. The company argued that doing so would cause irreparable harm to the network and knock out telephone service for miles! You could not buy your phone. You had to rent it for a monthly fee, payable forever (see below). Actually, it was even worse than that. Your bill also included a fee for every extension outlet in your house, even outlets that did not have telephones attached.

And, if you wanted to make a long distance call, there was only one provider, AT&T Long Lines, the one affiliated with your local Bell operating company. You paid by the minute: There was no unlimited service based on a fixed monthly fee. Why? Because they could.

Eventually, the government broke up the Bell System when upstart competitors wanted to sell telephone sets and other companies wanted to offer long distance service. Standards were established that allowed anyone to use the local network and get access to dial tone. Eventually, even that monopoly was broken when other telephone companies and cable companies were permitted to string wires into the neighborhoods. And then, even those technologies faced competition from cellular networks and voice-over-internet.

Is there a lesson from all this for health care? You bet.

The heart of the problem in health care has two dimensions. First, electronic medical records are often based on proprietary systems, limiting interoperability between health care networks. Second, doctors are captive members of a provider network, often one controlled by a region's major hospital or health care company.

As computer guru John Halamka would note, the first problem is gradually going away, in a technical sense. With the advent of national data standards, it will be easier and easier to electronically connect patient records across multiple providers. There are already clear demonstrations of full integration in place, where two or more organizations have found it to be in their mutual interest. But we can expect geographically strong networks to resist this. It will take government action to enforce interoperability.

The second problem, though, requires a Bell System-like solution. As long as physician groups are owned by or otherwise financially affiliated with hospitals, the doctors in those groups will not have the freedom to refer folks to the facilities that are optimal for patients. We can make all the claims we want about the need to have a closely tied physician network to provide integrated health care delivery, but those claims are vacuous. Such systems tend to be driven by -- and serve -- the hospitals and the specialists in them rather than the community-based physicians.

Ask this question to any primary care doctor you know who is part of a hospital-based network: "Do you feel you have the freedom to send a patient to a hospital in another network? " At best, they will say, "If I really feel strongly about it, I can do so." But, if they are honest, they will say, "I don't dare do that very often, if at all. My continued participation in the contracting benefits of my network depend on sending my patients to affiliates in that network."

It is time to break this system wide open and prohibit corporate affiliations between community-based providers and hospital-based health care delivery networks. Let's free up the community doctors to make referral choices based on publicly available data about clinical outcomes, quality of service, and other items that matter to their patients. If global payments become the norm, the PCPs should "own" the payment and then apportion it among secondary and tertiary providers who best serve their patients. Let the marketplace decide which hospitals rise or fall in this environment.

Short of that, we will retain Ma Bell in health care. Then, the answer will be the one given by Lily Tomlin (aka, Ernestine, the telephone company operator):

"Next time you complain about your phone service, why don't you try using two Dixie cups with a string. We don't care. We don't have to. We're the Phone Company!"

If you cannot see the video below, click here.


Bryan Jackson said...

Your idea may work in larger urban and suburban areas, but what about rural communities with only one hospital? Primary care physicians can create referral patterns that could eventually kill the financial viability of the local community hospital. If the local hospital closes, the community suffers with the loss of services. It's not big deal if you have to drive an hour for a hip replacement. When you're having a stroke, that's a different matter.

Paul Levy said...

Sorry, but you seem to contradict yourself. If there is only one hospital, where else would they send people? Are you suggesting they will send people to some place further away? Why would they do that, unless the other place offers better care? And if it does, maybe the local hospital should figure out how to upgrade itself to meet the same standard.

Margo Corbett said...

Paul, You have hit on one of my biggest concerns of the Medical Home / ACO movement. I'm personally caught in a web of providers belonging to one hospital system. While I like most of the doctors I've seen to date, I'm not thrilled with one of the test facilities. I've had conversations with the doctors running the facility voicing my concerns and am not sure if I've jeopordized future test procedures or will get better care. I fear if I insist on going outside of "The system" I will damage relationships and have to start travelling a distance for all of my medical care. Yes, the collisions that will occur the medical system changes are going to make it difficult for us all. I am a very informed patient & teach others how to advocate for themselves, but in doing so get caught between a rock and a hard place at times. When one knows enough to question the system it can create another whole set of problems / collisions.

John Freedman said...

I thought the two forces you were going to cite were the urge to consolidate into ACOs and the persistent demands to rein in costs. As you note, ACOs have enhanced market power, which as we know from several studies (MedPAC, CSHSC, MA Atty Genl)leads to premium pricing--which is no way to save money.

I guess there are two ways out: (1) allow the ACO/monopolies to grow (after all, clinical integration and scale are generally good things), but regulate them as you might a public utility (this is sort of the Maryland model), or (2) push for interoperability of all systems and therefore all providers, and let the PCP direct care.

I have to say that while the 2nd choice sounds like a good freedom-of-choice and market-oriented approach, I have doubts about how successful it can be. Networks form not only by contract, but by natural association and familiarity. Help me understand how this decentralized system can be made "accountable" and we can keep talking.

Anonymous said...

"Many people alive today do not know that the Bell System conspired to limit people's choice to the extent that you were not allowed to connect a non-Bell telephone in your house."

Not sure but my recollection is that you could not even connect a Bell telephone in your house. A serviceman had to come out and do it.

Anonymous said...

Without a careful read, your post may strike the uninitiated as obvious or simple. As always with most of your writing, a more complex subtext exists.

Question. At the time, re: ATT, no one could envision Bell telephone doing anything else than what it did. I was a little boy at the time, but your reference to one carrier, no phone aisle at Best Buy, etc., brought back memories. But unlike Bell, like all things with healthcare, we do say, yes, that sector really is different.

Is it possible, and I am not saying you are wrong, that the positives may outweigh the negatives in keeping consolidated networks? You can make a persuasive argument either way I think.

We will need data--just like closed vs open ICU's? I remember community pulm/CC docs making their case why they should be allowed into units. Preponderance of evidence does not support them now however. Not an apple to apple comparison, but not apples to oranges either. I think you know what I am getting at.


PS--i did not want to use the post to make the case, just wanted to put the idea out there for you to comment on.

Anonymous said...

Just a side note to your telephone point: A couple of years ago, an article in the New York Times detailed how Verizon (in all the markets they're in), as of 2008, still had about 7,000 people who were renting telephones.

The demographic was mostly single/widowed females in the 85 to 105 years old range. They had been paying the monthly fees for touch tone service and renting the phone for over 50 years.

Verizon never voluntarily ended this charge/program, when they knew the phones they were renting could be bought for less than $10 brand new.

A group of lawyers threatened to sue Verizon for tens of millions for not voluntarily ending the program twenty years prior.

Just a funny note how some people will continue on with a service that is totally unnecessary because it's what they've always done.

Paul Levy said...

Excellent point. Likewise, many people go to hospitals based on reputations that have no quantifiable basis. Why? Habit. Not only theirs, but that of the referring doctors.

LNerbonne said...


Last year, I attended a meeting of stakeholders gathered to discuss patient safety. One of the docs in the room said that if he was going to be expected to refer patients to the best performing facility for high risk surgery, then he ought to be paid for it. "Why should our facility lose money on these referrals?" was his retort.

This doc in essence was placing a higher value on profit than a patient's life.

This makes me wonder if we need more dialogue & policy- setting on the ethics of medicine/health care delivery. Some may argue that capitalism has a place in healthcare, but this physician's attitude portrays a too-common and dangerous model of care for patients.

Keith said...

Great post and spot on! Only problem is how do primary care docs assume what seems to be huge risk with little capital cushion. Most of the existing capital is held by large hospital organizations that often have billions in reserve and can weather a downturn, or costs coming out higher than expected. This idea sound too much like IPAs during the so called managed care era and very few of them exist today.

Secondly, what in this ACO model, as you correctly pose, keeps the patient from going elsewhere for his care (outside the ACO)? The goverment website describing this concept explicitly says that patient selection will not be encumbered. How exactly do they hope to create an open system of free patient choice, but hold the ACO accountable for quality? Something does not add up!

What needs to be done is to restrict employment of physicinas by these large hospital organizations so that physician referral is not controlled by the health care organization that writes their paycheck. Physician groups can hold risk and negotiate with hospitals for the cost of that care, hopefully directing their referrals on the basis of value rather than solely on cost. This is assuming the goverment gets it right with the proper incentives for quality care, so that the sole determinant does not become the lowest bidder.

This would be a perfect model for your hospital, who competes with the likes of Partners which does not demonstrate equivalent quality, but commands a higher price for its hospital AND specialists since insurers do not differintiate between the two competitors on the basis of price. MGH has the long term branding and name recognition that makes patients want to go there, regardless of whether they offer better service or not. Physician groups would be enticed by your hospitals lower cost and better quality with an opprtunity for increased incentive payments. Hospitals would have to compete on the basis of value, rather than name recognition.

Anonymous said...

There are other clinical integration models rather than hospitals owning doctors. I know as I've worked in them. Look at the 4 to 5 year demonstration project sites for Medicare's performance trials: Marshfield, Billings, Geisinger, Mayo, Gundersen Lutheran, etc. These physicians work as a group practice of professionals with hospital facility partners. Never have liked the term "hospital employed" as this makes the docs chattel. Bob

Tom Leith said...

> If global payments become the norm, the PCPs should
> "own" the payment and then apportion it among
> secondary and tertiary providers who best serve
> their patients.

So, Mr. Levy, I guess you never want to run a hospital ever again ;-)

This is more or less what I think -- at any reasonable rate of pay for PCPs (which could easily be twice current) I'm sure we're best off using a variant of the gatekeeper model, not that it will be perfect. In your example the patient chooses his gatekeeper, the gatekeeper chooses consultants and service providers. I sincerely hope the Guild can get its act together and protect its members from being absorbed.

I like your Bell System example. I still have the phone I was "allowed" to buy from Southwestern Bell when the feds broke them up. It has a sticker on it now "No longer the property of Southwestern Bell."

I lay the problem of barely emerging interoperability standards at the feet of hospital CIOs -- they do not insist on interoperability and so they haven't got it.

I have personally heard one hospital system CIO who shall remain nameless say his strategy is to implement whatever vendors vend (and his facility department heads choose) with no customizations, and whatever level of interoperability his facilities decide they want will be provided for in an (overpriced) interface engine, but he won't do anything that requires the interface engine to store data. In other words he and his system have no strategy, and he himself is a vendor not a leader. And for this he's paid a couple hundred thou a year...


pcp said...

From The Health Care Blog:

Seems like it would be obvious to everyone that consolidation and decreased choice results in higher prices, but I guess not.

Steve said...

Mr. Levy - I agree and would go a step further. We need to get real about the concept of insurance. Health insurance should cover catastrophic issues, but regular health and wellness costs should "touch" the user a lot more than they do today. Tax policy can help reduce the sting of costs, but some sting must remain... only then is there any incentive for a patient to be a smart customer and ask the tough questions of health providers (why are you referring me to X? what's the track record of Y? etc)

Bill said...

From The Health Care Blog:

Several issues associated with the status quo for primary care physicians will need to be addressed if the accountable care organization or any similar integrated care continuum associated with financial risk assumption is to take hold.

First, the vast majority of primary care physician practices are not financially configured to take on risk. They do not have the "cost accounting" structure or systems to understand exactly how much each different episode of care where any significant products or services falling outside of their own treatment of patients costs.

Secondly, they do not for the most part possess the procurement and vendor management expertise for professional medical services needed to make ACO's work. They will need to operate much like a manufacturing job shop, with use of other specialties and facilities as subcontractors where both preferred pricing and quality assurance requirements have been validated in advance.

Until these changes take place, the status quo which is biased heavily in favor of specialty physicians and hospitals is likely to not only continue, but to strengthen given their access to low cost capital via the hospital affiliation.

Paul Levy said...

Excellent points, Bill. The other thing that might happen is consolidation of primary care practices into larger group practices that have the capabilities you outline. That would provide the actuarial basis for taking on more risk, as well as the expertise to run the practices in more business-like fashion.

Anonymous said...

The more I observe what is happening in medicine and health care today, the more I become convinced: those physicians who organize their practices into larger, cohesive and cooperative groups with the resources to have a good IT system, personnel who can engage in systems thinking and planning, and a relentless commitment to both quality and cost control (their own practice costs as well as costs to the patient) - will survive and even flourish and enjoy practicing. Those who cannot, will not. It's past time to start planning for the future.

nonlocal MD

Anonymous said...

A major cause in health care inflation is the secret disparity in hospital and provider fees, the monopoly of hospital networks, and the political power of specialists within medical organizations. I reviewed EOBs(the All Claims Data Base is not really transparent) from friends throughout Massachusetts and found that for a typical level four office visit, (Medicare rates are $104) a major HMO pays Boston elite doctors $230 and independent doctors $140. However the average difference in co pay amounts between tier1 office visits and tier3 is only $25. Studies have shown that if all providers and hospitals accepted medicare rates then premiums would drop 50%. If all providers were paid medicare plus 30% then I believe premiums would drop at least 25%.
I propose: 1) Establish a base uniform fee equal to medicare plus 30% for all licensed providers of all allowable services who choose to be preferred providers (PP). This rate is comparable to the present independent provider rate. PPs would collect a minimal co pay for services rendered. PPs must be allowed to participate in all plans and must be advertised on the front pages of all HMO web sites and subscriber manuals. 2) PPs who would accept medicare rates would be advertised as zero co pay providers and would generate the highest volume. 3) General providers (GP) would be allowed to collect limited additional co pays equal to the PP minimal co pay plus the difference between the base uniform rate and a higher allowable contracted amount. 4) 25% of all present subscriber premiums shall be transferred to Health Savings Accounts and these funds can then be used to pay higher co pays of elite providers or hospitals. If subscribers choose preferred providers or preferred hospitals then at the end of the year remaining funds in HSAs can be withdrawn or rebated as taxable income or rolled over tax free to the next year. Consumers will now be fully vested in the system and will see a direct relationship between premium rebate and the tier level of the provider or hospital they choose. PPs will benefit with greater volume and those with entrepreneurial spirit will do best. If consumers perceive elite GP providers as superior then consumers will use their HSA funds accordingly. Since health insurance is often viewed as a negotiated employee or union benefit, these benefits will continue to maintain their existing monetary value. 5) HMOs should be allowed if desired to manage HSAs for their subscribers. 6) All PP primary care physicians and nurse practitioners must be paid medicare plus 60 %( 30% more then the uniform base rate). This redistribution of fees will guarantee equivalent income compared to some specialties and thus cause a huge increase in primary care providers that any future system will require. 7) Insurance commissioners must be authorized to publish all HMO provider and hospital fees and utilization rates. The commissioner should set new procedure fee rates when utilization increases 25% or more over a three-year period for a given procedure. In addition, the commissioner must review and authorize all premiums so that all cost savings from reduced provider and hospital fees are passed through to subscribers. 8) HMOs must be penalized if they do not enforce utilization protocols established by medicare and already accepted by medicare participating providers.9) All providers must accept medicare plus 30% with minimal co pay as payment in full for low income subscribers( the connector group). 10) A global payment mechanism tied to PQRI could be layered onto such foundation. 11) Continue to publish quality metrics to aid consumers. 12) Anti trust laws need to be strengthened to prevent IPAs or large hospital provider groups from interfering with individual provider free choice in determining either PP or GP contract provider status.
Consumers can stop the rationing of care and break monopolies. Would anyone else be interested in such a process? If so how about a petition for a law? Sincerely, “A Provider in the Trenches”

Engineer on Medicare said...

Paul Levi said: "If global payments become the norm, the PCPs should "own" the payment and then apportion it among secondary and tertiary providers who best serve their patients. Let the marketplace decide which hospitals rise or fall in this environment."

The scary part of this is, how does one ensure that the best interests of the patient do not conflict with the financial or other interests of the PCP organization? I had two experiences where my former primary referred me to "specialists" assocoated with the local hospital, with less that satisfactory results.

He referred me to a urologist who diagnosed prostate CA and sent me to a buddy doing brachytherapy, which an oncologist whom I consulted determined to be inappropriate for one with my Gleason score and pathology. Eight years after a prostatectomy I have undetectable PSA.

In another case the diagnosis from a heart study by a local cardiology practice was "moderate valve damage; let's look at it in 6 months." I insisted on a referral to the cardiology department in one of the teaching hospitals in Boston which, upon reviewing the record from the stress-echo, determined that there was no damage and the original valve damage diagnosis was incorrect.

When I have a life-threatening diagnosis or serious unresolved problem I want to go to health care version of the Red Sox. I don't want some local PCP group or HMO telling me that I have to settle for the the health care version of the Lowell Spinners of the Manchester Fisher Cats.

Anonymous said...

Paul, your phone company example leaves me wondering if community doctors would ever have highly integrated clinical activities with hospitals or specialists under the scenario where the company breaks up. We got past that issue with Bell by having "plug and play standards" that allowed competitor long distance providers and handset manufacturers to design services and devices that simply fit into the rest of the system because there were clear standards for interoperability. For your scenario to work in the case, for example, of a primary care doctor and competing nephrologists, we'd need to develop standards for clinical cooperation that were independent of the individual providers. That would be great, but we'd have to find a way for everyone to agree on the standards. Lots of other industries have tackled similar standard setting challenges, and perhaps health care providers should as well.
Greg Young

HMathewson, MD said...

From The Health Care Blog:

" If global payments become the norm, the PCPs should "own" the payment and then apportion it among secondary and tertiary providers who best serve their patients. Let the marketplace decide which hospitals rise or fall in this environment. "

This a great idea and exactly what the proposed changes in the NHS in U.K. will do. By 2015 GP Consortia will be "commissioning" (purchasing) all secondary services for their defined population. Hospitals and specialists (Consultants) will compete for the contracts based on quality. Price, of course, will be controlled by NHS policy. The GPs will be responsible for allocating 80% of the NHS budget! More on U.K. and U.S. health care reforms at

Kim said...

From The Health Care Blog:

I agree with the Ma Bell analogy, but don't quite agree with trying to prohibit the affiliation in the manner you suggest. Given the increasing dominance of local hospital systems -- monopoly or near monopoly in many markets -- I'd argue we either need to treat them like other monopolies with high capital costs of entry. I.e., treat them as a utility, with regulated pricing/profits, or break them up.

Margalit said...

From The Health Care Blog:

Well, if the tectonic forces are consumerism on one hand and integration on the other, I don't see how creating any type of networks, whether primary care led or hospital led, can accommodate both forces. Even if ACOs are led by large medical groups, the referral network will have to be limited in order to realize cost benefits.
I know we feel more comfortable having a primary care doc call the shots, but if primary care docs aggregate into large enough systems to become competent at running "the practices in more business-like fashion", would they still be the same entity we felt comfortable with at the onset?

I still don't understand what is so terribly wrong with fee-for-service.

BTW, HIT is largely irrelevant I believe. There will be appropriate computer tools for whichever direction the business takes. Although HIT seems to presume that they have a voice in what business model should be chosen, there is not much precedent in other industries to justify this delusion of grandeur.

Christopher Langston said...

As usual, thought provoking and amusing.
I do remember when there was only one phone company and I remember being one of the early adopters switching to MCI for long-distance service. (The potential of that analogy gives one some pause, no?) So I take your point about market consolidation, lack of service, and lack of cost control. But there are also problems in a freewheeling marketplace.
While the logic of your analysis is strong, I think there are reasons to be cautious about your suggestions and I think there are some other important problems that we should stop and consider that are part of the picture you draw.
First, a primary care/market driven system is clearly appealing in many ways - it keeps the authority and money in the hands of those closest to the patient, it supports care coordination, and it would rebalance our system towards prevention and health promotion (to the extent that primary care docs care about those things more than others).
However, it has been tried and largely failed. The "California model" of managed care gave a variety of capitation payment arrangements to physicians groups who could then sub-contract with hospitals, specialists, etc. For the most part docs and patients have fled from this model. Only a few provider orgs and only the most integrated systems could seem to make it work.
But if physician groups want to do this - take the risk - the approach is still available as are other capitation arrangements.
What seems to me to be the unstated assumption in your approach is that competition will drive quality. While this is pretty much the water in which we market capitalist fish swim, does it apply to health care? There is very little evidence that direct consumers make much use of quality information in shopping for medical services. When you need them, the matter is urgent, when you don't, people have other interests, and besides for most of the insured (commercial or public programs) the payor has a lot to say about who and where you get care.
Small health systems and small practice clearly have difficulty obtaining the capital needed to adopt innovative procedures and technologies. Don't look to your independent physician to have an EMR, provide care management services, or be able follow your progress in the hospital, nursing home, or at home.
The other part of the assumption is that only competition can constrain quality variability. I would like to see professionalism, the mere fact of public reporting, regulation, and better quality improvement infrastructure also constrain variability in quality. How much better if you have a good chance of getting good treatment wherever you go.