Wednesday, November 15, 2006

AT&T and The Bell System (remember them?)

Steve Bailey, a Boston Globe columnist, offers an interesting column in today's paper about the market power and the behavior of the largest hospital and physician group in the state, Partners HealthCare System. The head of that group makes a cogent and thoughtful comment (as he often does) about the ambiguity in today's society about its desire for greater cooperation among health care providers and its wish for a competitive marketplace.

With respect, though, the comment misses the point that Partners could be more cooperative, still maintain its dominance, continue to be financially healthy, and could also enhance the efficiency of the overall system. Instead, it rationalizes aggressive stances in the marketplace with a supposed need to ensure quality.

What I have learned in my short time in this field, though, is that no single hospital or system has a monopoly on good ideas to enhance quality and efficiency. When one group puts up barriers to cooperation, everyone loses an opportunity to improve.

As a student of other industries, I also humbly suggest that protectionist behavior by a dominant provider also removes a key stimulus -- within its own system -- to encourage behavior that enhances quality and innovation and customer service. Remember Ernestine, Lily Tomlin's telephone operator?


TimeTrade team said...

I recall when Dad brought home an album by Allan Sherman, of "Hello Muddah, Hello Faddah" fame, including "The 'Let's All Call Up AT&T and Protest To The President' March." It included what was then a ludicrous, silly call to action: "Let's take our business to another phone company."

It was ridiculous; phone competition was unthinkable.

I have nothing against AT&T. My dad once worked for AT&T, and 100 years ago my maternal grandfather was president of NY Telephone. They made good durable equipment etc.

But the monolith was broken up when its monopoly power led to slow innovation and Ernestine-style customer service, and we've all benefitted from the resulting innovation.

And I dare say we all have more at stake in health care than in phones. Some of us will no doubt face a bedside moment where our own survival, or the survival of a loved one lying there before us, hangs on whether the next innovation has matured yet.

There's too much at stake here to let anything trump a joint effort to create and deliver better care.

Anonymous said...

Bailey touches on the "Partners Problem" but he does not go far enough. They are a barely integrated group of hospitals and physicians that decide on the level of reimbursement in their market area and then tell the HMO insurance companies to go collect this amount from businesses and their employees. If they don't do their bidding, Partners threatens to walk away which would leave the HMO with a huge hole in their provider network that would make their product impossible to sell. Right now, Partners is clearly a monoply that sets market prices where they want and crowd other providers out by dangling their rich contracts to attract others into their network. They are getting a disproportionate share of the available dollars which allows them to invest in the newest technologies and recruit and retain top physicians all while making enormous profits. It is quickly becoming a two tier healthcare system with Partners a state of the art and profitable system while others struggle just to show a meager profit. This is unsustainable and it is long overdue that somebody put Partners under the microscope to see if they are a monopoly that needs to be broken up to create a truly competitive marketplace in eastern Massachusetts. I would even question if they share enough network "risk" to justify their collective negotiating with the insurers that makes them so powerful.

Anonymous said...

The 22% market share controlled by Partners inside of Route 495 does not strike me as overwhelming dominance. In theory, it seems that there could be significant potential for industry consolidation by merging several of the smaller competitors. While someone will have to give something up in order to achieve cost savings, synergies, and allow each hospital to focus on what it does best, perhaps the market (and the public) would be better served if there were two or even three hospital systems that each had 20% of the market or more.

In most categories of retailing, for example, the market seems able to support two dominant and successful competitors. Examples: Home Depot and Lowe's; Wal-Mart and Target; Costco and Sam's Club; Walgreen's and CVS; Kohl's and J.C. Penny. At the same time, the #3, 4 and 5 competitors in the market are weaker and often unable to earn their cost of capital.

Hospitals are very capital intensive businesses. If hospitals consolidated into two or three large systems in each market, it should be a lot easier to rationalize facilities and minimize duplication of expensive equipment.

Anonymous said...

Seeing what has happened at the northshore group I wonder if this will happen on nantucket and martha's vineyard, if they don't march and lock step with the fruit street clinic.

Bwana said...

This is an intriguing issue. After going through all the trouble and upheaval of breaking up AT&T with the result that cost of hardware (telephones and local switches)was shifted to consumers with relatively little improvement in service, we are letting the phone companies reform the monopoly. Of course, there was an effective regional monopoly even with the break up until recently.

One fact stands out though for me as a person who lived in countries with relatively lousy phone service. When you picked up a telephone in the USA there was always a dial tone and instant connection with great clarity -- as distinguished from hit or miss connections and spending half the call yelling into the handset.

In that sense, US health care, with all its problems stands out as being exemplary.

It seems to me that basic medicine is terrific -- it is in the delivery and service that great room for improvement remains. It is also in the cost of delivering the service that we seem to have fallen down.

From that perspective, Partners is not likely to lose any market share by focusing on service and delivery in conjunction with other providers such as BID. In fact, Partners probably does not have the capacity or desire to usurp BID's patient population -- perhaps the cream of the high-end revenue stuff, but as I noted, albeit implicitly, in a previous comment, people will look for full service from their primary institution, not go shopping procedure by procedure.
If there were a true monopoly, Partners would dispense with the insurers. But the insurers are a de facto back office operation for the major health care players.
Viewed in that way, the insurers provide a service that may not be worth replacing even though the cost of retention is higher than self service.