Sunday, January 12, 2014

Back to the future

I always look forward to giving a talk in Jim Conway's and Ron Goodspeed's physician leadership course at the Harvard School of Public Health, and today's class was no exception. The students--leaders from around the country--are interesting and attentive.  Moreover, Jim and Ron set up the framework for the class in a way that is always engaging.

But today, I was taken aback by their introductory remarks to my class session, which was a review of the turn-around I led at Beth Israel Deaconess Medical Center in 2002 (using a case study prepared by Harvard Business School.)  The turn-around was necessary because of a failed merger within an ineffective corporate superstructure, the CareGroup system.  Truly, I have considered this "old news," but the instructors' remarks put the experience in a current context.  Harkening back to the mid-1990s, they noted that today's environment in health care is remarkably similar: a rush to mergers and acquisitions; financial pressures on hospitals; and big changes in the relationships between doctors and hospitals.

The class discussion stimulated my thinking abut the current scene.  While Partners Healthcare System will likely remain dominant for years to come in the Eastern Massachusetts market, it is interesting to observe other players and see how they plan to deal with the remainder of the market.  Merger fever seems to be the answer.  Let's take a gander:

Is it possible to be Switzerland?

Mt. Auburn Hospital in Cambridge is a high quality facility that has had excellent administrative and clinical leadership for many years.  Following a successful capital campaign supported by loyal constituents, it was able to upgrade and expand its buildings and equipment several years ago.  The focus on quality and safety has been exemplary, with outstanding results.  A long-standing, close relationship with its major physician organization has enabled the organization to do well under risk contracts.  On that front, too, MAH was an beneficiary of Blue Cross Blue Shield's "Alternative Quality Contract" in the early days, when BCBS padded first-year global payment budgets to entice hospitals and doctors to sign on.  Although MAH is part of CareGroup, its has been more like Switzerland.  While its doctors sometimes send higher acuity patients to affiliate BIDMC, they often choose PHS' Massachusetts General Hospital as a referral site.

This latter independence of spirit and practice is now up for grabs.  There have been thoughts recently that it is time for a formal merger of MAH with BIDMC.  These thoughts appear to be driven by expected financial pressures on MAH.  Some people apparently think that a merger would help alleviate the capital issues associated with renewal and replacement of physical plant and facilities. Creating a common bottom line between the two organizations, merging electronic medical records, and sharing in risk contracts would be the goal.  The expectation would be dramatically reduced tertiary "leakage" to the PHS system.

Beyond the normal administrative issues surrounding all mergers, this kind of shift in clinical practices could be viewed as problematic by MAH physicians.  Further, to the extent BIDMC must meet its own capital needs and those of its other new acquisitions, the process by which MAH could rely on access to capital could raise concerns among the loyal MAH community.

Is it possible in a world of ACOs for Mt. Auburn to remain as Switzerland, with relationships among a number of Boston area tertiary hospitals?  That's the underlying question for its administrative and clinical leadership and governing body.

How's the view up there?

New England Baptist Hospital, another CareGroup subsidiary, is nationally recognized for its prowess in orthopaedics.  Like MAH, it has also intensely focused on quality and safety issues and has an exemplary record in that regard.  On top of Parker Hill, separated by some distance from the hospitals in the Longwood area, NEBH has long suffered from lack of easy access to non-orthopaedic specialists who can be crucial to the care of complex patients (those with diabetes, heart disease, cancer, and the like.)  Other orthopaedic hospitals, like the Hospital for Special Surgery in New York, deal with this problem by adjacency to, or physical connection with, a general hospital (NY Presbyterian in the case of the HSS.)

Given the private practice model in place at NEBH, a full-scale merger with BIDMC is not likely.  But a real estate deal might be in the cards.  Sell that property at the top of Parker Hill--one of the best views in Boston--and use the proceeds to build a new pavilion on Longwood Avenue, connected to BIDMC. Integrate the electronic medical records systems and share the adjacent clinical specialists and tertiary facilities as needed.

Three's company?

There's talk all over town about a possible merger of BIDMC, Lahey Clinic, and Atrius Health (the state's largest multi-specialty practice.)  Such a merger is viewed by many as the ultimate book-end to the Partners System.

Gene Lindsey and I negotiated the first major affiliation between Atrius and BIDMC back in 2009, which resulted in a shift in tertiary and emergency care for thousands of patients from Brigham and Women's Hospital to BIDMC.  This partnership also produced the first generation of interoperability between our EHR systems.  Since then, the relationship has grown stronger and provides a foundation for more detailed talks.

There is a long-standing historical connection between BIDMC and Lahey based on Lahey's affiliation with the New England Deaconess Hospital years ago.  But, in recent years, the two organizations have been operating mainly in parallel--neither allies nor competitors.

A three-way merger here is a sophisticated and difficult negotiation. Assuming it makes sense on clinical and financial terms--something worth detailed and rigorous study--there are the following issues:

Leadership:  Only one of the current CEOs has operational experience in running a health care system.  Are the other two prepared to step aside, substantively, if not in title?

Governance:  Three very different kinds of boards are in place in the three entities.  What would be the desirable--and politically acceptable--form of the new governing body?  What would be the mix of lay versus clinical members?  What percentage of the board would come from each entity, or from outside all three?

Clinical direction:  Would this be a tertiary-care centric ACO, viewing the community doctors as referral sources?  Or would this be a primary-care centric ACO, viewing the hospitals as service organizations to the community doctors.

EMR:  What system would be put in place for interoperability of electronic medical records?  The "easy" path--buy an Epic system, the one used by Atrius--is fraught with high costs and loss of control to the vendor.  Is there an alternative that would work "well enough" and avoid the risk of an entirely new system?

Possible splintering within Atrius:  Atrius is a confederation of several multi-specialty practice groups.  While Harvard Vanguard is the largest, the others all have a role in governance.  Another large member, Reliant Medical Group, focuses on Central Massachusetts and relies on St. Vincent's Hospital as a tertiary referral center.  Whether Reliant or other parts of the alliance, will they agree enough on the world of the future to welcome a common bottom line with Lahey and BIDMC?

Thinking back to our class at HSPH today, I'm thinking there will lots of good case studies for Jim and Ron to present ten years from now.  It's too soon, though, to know whether the cases will be success stories or failures.


Anonymous said...

Being nonlocal, the details of your analysis are largely lost on me. But, your initial supposition that Partners will remain dominant for years to come seems a bit defeatist. In a rapidly changing environment such as pertains now in health care, it would not take much to topple the 'king' despite all the treasure. All it would take is for someone to finally develop the courage, or need, to install tiered pricing as Barry Carol has long advocated - or for something to happen that puts patients' skin in the game in a signficant way, and incentivize them to find the most cost-effective health care in Boston.

Then, things could change very quickly indeed.

nonlocal MD

Barry Carol said...

nonlocal –

In addition to tiered networks, I think reference pricing for surgical procedures and outpatient procedures that lend themselves to the concept would also be helpful. Another strategy that could alter the landscape would be for employers to move from a defined benefit to a defined contribution approach to financing health insurance for both active employees and pre-Medicare eligible retirees. This could be done through private exchanges that could include offerings from a single insurance carrier or multiple carriers. I think private exchanges have the potential to explode over the next five years or so. Walgreen is already implementing this approach for its employees. I think a defined contribution approach could make both employees and retirees far more price sensitive in selecting a health insurance plan that works for them than they are under the current defined benefit system where there is often only insurance one option to begin with.

As ACO’s form and negotiate risk contracts based on total healthcare costs along the entire continuum of care and physician bonuses become driven, at least in part, by controlling costs instead of relative value units billed, they should start to see it as part of their job to know and to care about healthcare costs especially for hospital based care. Obviously they would need price and quality transparency tools to help them. However, even without such tools, they must know that PHS exploits its market power to extract significantly higher prices than everyone else in the market for virtually every service, test and procedure it offers. That should be enough justification to refer patients elsewhere except for cases where PHS really can offer the patient the best care in the region.

Paul Levy said...

All of what you say is true, Barry and nonlocal, but there is little indication that the body politic in Massachusetts is interested in pursuing that approach. Hope springs eternal, though!

Anonymous said...

For the Atrius, Lahey, BIDMC, Mt. Auburn mergers to happen, everyone will need to understand that as long as they are focused only on their self interest Partners will continue to dominate.

Anonymous said...

Barry and Paul;

I don't think your body politic has the gazongas to act, true; but I think there is a very good chance that market pressures will supervene. As Barry points out, employers may well discover that private exchanges suit their needs and provide patients (I still refuse to call them consumers) proper incentives to save. We have wondered for a long time why employers have not used their clout to control health care costs; here is a chance.

But Barry is also right on target pointing out that physician behavior must also be modified, and that may be even more difficult than patient behavior. Skin in the game here, I have to admit, may also be the best modality - particularly in the Boston environment which seems even more built on 'good old boy' referral networks and patterns than other markets.


Paul Levy said...

Stay tuned for future posts on physician incentives--what works and what doesn't. Headline: It is NOT about the money.

Barry Carol said...

Paul –

Since Massachusetts has the highest per capita healthcare costs in the country, it seems strange that the body politic is so accepting of the status quo. Do the people think they’re getting good value for their money or is the healthcare industry so important in terms of jobs in the state that the legislature and regulators are reluctant to upset the applecart or is there some other logical explanation?

Paul Levy said...

Lots of reasons, Barry. A very weak business community to start with, with no leadership demonstrated on health care issues. Interlocking boards between the dominant provider group and corporate executives in the biggest firms. Extensive involvement by health care leaders in political campaigns in a one-party state. Strong labor unions who do not want to agree to actual or perceived reduction in the "value" of their health care benefits. Boston provincialism, leading to a believe that we have the best health care in the country, if not the world.

Anonymous said...


Could you comment on the cultures at BID and Atrius?

Lahey is and has always been member governed by its physicians to my best knowledge.

How would BID and Atrius fit into that type of governance structure?

Paul Levy said...

Atrius is physician led, too, although the governance is complicated by the need to represent the underlying affiliated organizations.

BIDMC is governed by a lay board, with a minority of physician membership. HMFP, the hospital's faculty practice, is governed by a board, mainly physicians with a few lay members. Presumably both governing bodies would be involved in any merger discussions. In addition, the board of the holding company, Caregroup (mainly lay members), would have to be involved.

I don't think I can adequately describe the cultures of the three organizations.

Anonymous said...

My impression is that health care leaders in the state government are afraid of hurting the golden goose called Partners (as was said by others an important part of the local economy), so they have deliberately limited how big a price incentive that insurers could give to lower priced hospitals in tiered and limited networks to prevent to large a loss of market share too quickly.

But the reverse has happened.

Over the last few years state healthcare leaders have gradually allowed the financial incentives to increase with little noticeable effect on market share - in fact the market share of the highest cost hospitals like those of Partners and Childrens has increased at the same time as tiered and limited networks were introduced.

In fact two of the biggest insurers - Blue Cross and Harvard Pilgrim have moved very slowly when introducing tiered and limited networks. If they along with Medicaid insurance plans and governmental employees were given much larger financial incentives to make them more health care price conscious maybe lower cost provers - hospitals and doctors networks would actually increase market share.

What state governmental leaders forget is that even if Partners hospitals are hurt and possibly reducing employees, because someone else is taking market share with lower prices, other hospitals will be increasing jobs even as Partners reduces them, and other "consumers" of healthcare like private business, governmental agencies and tax payers all have more money in their pockets to grow businesses, provide new programs to help those in need and give more money to consumers.

Barry Carol said...

Paul – Thanks for your response to my last comment. That’s quite a list. While I applaud Massachusetts for its leadership in getting its population to near universal health insurance coverage, it appears that it will take a more fiscally and politically conservative state to provide leadership on healthcare cost reduction. I’m certainly not holding my breath waiting for it to happen at the federal level.

Anonymous 3:46 PM – While I agree with most of your comment, I think real progress on healthcare cost reduction in Massachusetts would have to include not just moving market share away from PHS but also reducing unnecessary and marginally useful care that results from a combination of practice pattern culture, defensive medicine and sometimes unreasonable patient expectations. Risk based contracts and, especially, capitation could start to address all of those issues though the defensive medicine issue really needs to be helped along by safe harbor protection from failure to diagnose lawsuits for doctors who follow evidence based guidelines and protocols where they exist.

Significant cost reduction in healthcare would likely have a net negative effect on employment in the state as the lost healthcare jobs would probably not be fully offset by job growth in other areas because healthcare is a more labor intensive industry than others like, say, automobile manufacturing where most of the jobs are located elsewhere as well.

Anonymous said...

Barry Carol,

I have focused this response on attacking waste (as you eloquently elaborate) vs moving market share to efficient providers.

We need to do both!

[Note the next focuses in the job question.]

If academic medical centers can do the same tertiary & quaternary as MGH and Brigham & Womans for 30% less cost (some like Tufts Med & Lahey can) and community hospitals can do the routine care that makes up most of those same two hospitals health services for 50% less that is a huge and relatively quick reduction in health care spending.

By the way I am clearly not saying to note do all those good things you describe to reduce waste, which was estimated last week at 20% to 40% of all health care spending in Massachusetts by the Health Policy Commission.

I am saying doing all of those things to reduce waste will take time. Shifting market share from high cost to lower cost providers, the saving for all concerned happens faster.

In Eastern Massachusetts according to many studies done by the CHIA and its predecessors most care is provided in the most expensive hospitals and they have been taking market share in recent years.

If all we do is reduce waste but keep market share as it is we get much less savings than if we shift market share to lower cost health providers and ALSO attack waste.

We need to do both!

Anonymous said...

Barry Carol

You state that you don't think job gains will offset the jobs losses, partially because health care is very labor intensive.

I agree health care is labor intensive.

But if jobs are lost at an expensive hospital and jobs are gained at a cost effective one much of the job loss is a wash.

The gains probably won't completely offset the losses since the lower cost hospital is probably more efficient in its use of labor, but as the lower cost hospital gains market share they will have to hire more doctors, nurses, and other service staff to acomodate the additional market share. So what is mainly happening is assets are being shifted to a more efficient lower cost provider. So many of the jobs lost in the expensive hospital are moved to a less expensive hospital - also labor intensive.

In addition to that ....the total economy gains because the money saved in health care can be spent by small and mid-sized business owners, large companies, individual patients, and the government.

If small business owners could reduce their health care expense I would wager that a good portion of that money would be reinvested and create jobs. Not capital intensive auto factories, but small & mid-sized service companies that make up most of the employment growth in U.S. economy.

If consumers are paying less for health care they can spend more on little luxuries in their life, going out to nice restaurants, buying a new dress, new laptop, a better car etc etc. All of thats helps retailers, distributors and producers of those products and more people are hired.

And if government spends less on health care, there is more money available to help those in need.

One reason US companies have lost some of their competitiveness in this country is the high cost of health care. We spend about twice as much as other OECD countries.

If healthcare was 9% of GDP (like the average of other OECD countries) rather than our current 18% our companies would be the most efficient in the world.

That is one of the big factors why job growth has lagged here in the US. Health costs us an extra 10% for everything we sell.

Wish I had an econometric model I could show you.

But think of profit margins for all firms large and small increasing by about 10%.

You don't think they would be trying like crazy to grow their businesses and therefore hiring?

Markets are not always good about ensuring fairness, but they are very good at moving assets to those who use them most efficiently and thereby growing the economy. And it the economy is growing robustly, so are jobs.

If we want to get our economy growing robustly again, let the cost efficient health providers take market share and see how it benefits the whole economy.

Barry Carol said...

Anonymous 10:55 PM and 11:23 PM –

Thank you for your detailed and very informative responses to my last comment. You obviously know a heck of a lot more about what’s going on with healthcare in MA than I do down here in NJ. I’m certainly all for taking as much waste and inefficiency out of healthcare as possible and freeing up those resources for more productive and enjoyable uses.
One question I have though relates to the nature of inefficiency in hospitals. I get that academic medical centers are inherently higher cost than community hospitals because of the former’s education and research missions and, probably, a higher acuity case mix. However, community hospitals do common things commonly and well every day and we should be trying to provide as much care as possible in the lowest cost settings that can handle it competently and appropriately. That includes seeing an NP instead of an MD for minor medical problems.

In the case of PHS specifically, I suspect that they are probably competitive with other academic medical centers in terms of the number of employees per licensed or occupied bed working within the hospital itself. Factors that I think could drive inefficiency include a persistently lower than average occupancy rate, lots of expensive equipment that is grossly underutilized and paying doctors and other staff members above market wages and benefits. Another cost driver could be a preponderance of single rooms which some think is a good thing because it should reduce the chance of infection and promote rest and healing. The biggest problem with PHS, though, is its market power. Even if its costs are more or less competitive, its contract reimbursement rates (prices) are certainly not.

Anonymous said...

Barry Carol,

Yes academic medical centers are "generally" but not in all cases more expensive than community hospitals.

If you remember the chart Paul published in this blog on January 8th, it showed there is a broad range of expenses for major teaching hospitals expenses .

As was quoted by Paul from the HPC report: "However, the difference in median expenses per discharge between teaching hospitals and all hospitals ($1,030) was less than the difference between individual teaching hospitals ($3,107 between the 75th percentile and 25th percentile teaching hospitals)"

The three highest case mix adjusted inpatients discharge costs were roughly $14K and the next two at roughly $13K. Based on past experience, I am guessing since the chart isn't labelled are Childrens, then the two Partners hospitals, MGH and B&W.

The median for academic medical centens roughly $10K. The 25th percentile is roughly $9K and the lowest was $8k.

The $13k of the Partners hospitals is 30% higher than the median and 60% higher than the least costly major teaching hospital.

I wish I could tell you the numbers you are seeking on employees per bed etc. but I don't know them. I have not seen those published anywhere, though I suspect if you had access to the data from University Health System Consortium or similar organizations it is available.

I also do not know the details of Partners hospitals efficiency.

Partners is charging 30% more than the median major teaching hospital. That is what the chart showed. Partners doesn't have 30% margins. Brigham and Womens has averaged roughly 5% margins over the last five years and MGH is at roughly 6%.

So math tells me the Partners hospitals are less efficient somewhere. But I have no idea where.

[Please note: 5% or 6% margins are pretty substantial in an industry that averages maybe 2.5% to 3%.]