Time to call HBS?

This post is about strategic planning in the Boston health care market. I hope you will respond with your reactions and thoughts. As a friend of mine likes to say, "there is no monopoly on brains" when it comes to these matters, and I welcome your judgment -- and that way I won't have to pay money to strategic planning experts from Harvard Business School!

Here's the scene. BIDMC is a very fine hospital in a city with lots of very fine hospitals. (We are blessed in Boston to have really wonderful clinical care in so many places.) Our two largest competitors are part of a network (Partners HealthCare System) that has beautifully executed its business plan and therefore has substantial leverage over the three main insurance companies in the state, which has resulted in higher rates for the hospitals and physicians in that network. BIDMC and the other hospitals and affiliated physician groups get rates that are under the price umbrella negotiated by the dominant system.

As "Avis" to this "Hertz", we have adopted a plan to position ourselves as a low-cost and high-quality provider in this region. We have done so because we believe that demands from the public and financial pressures on insurers will over time put substantial pressure on the academic medical centers, and that we will best situated for the future if we are known for both high quality and low cost. As you have seen on this blog, we aim to be quite transparent with regard to our clinical outcomes. Also, we hope to achieve operating efficiencies to lower our unit costs. (Note to unions: We do not intend to do that by squeezing our workforce. Quite the contrary, we intend to be the preferred place for people to work because of an environment that provides respect and opportunities for them.)

And, consistent with that strategic visions, on this blog and elsewhere, I have argued that insurance companies should pay us all based on the quality of our clinical results and not based on market power.

A recent posting by Charlie Baker on his blog makes me wonder if this makes sense. (I do not think he intended this result.) He said the following:

One can argue that Partners sets the table for everyone else - and that all providers benefit from their negotiations. If Partners gets “X” out of their negotiations with TAHP, HPHC, BC/BS of MA, etc., then everyone else gets some percent of “X,” which might be, in fact, higher than it would have been if Partners didn’t set the bar so high to begin with. When Partners decided some seven or eight years ago that they were going to demand huge rate increases year after year after year out of the private employers and health plans to “re-balance” the health care system in MA, most other providers benefited from that. They didn’t get the increases that Partners got, but they shadowed the increases Partners got, which was still substantial.

Beyond Charlie's point, there is also little or no indication from corporate purchasers of health insurance in this state that they are interested in insurance products that are based on quality of care. If there were interest in that, the insurers would have developed products along those lines by now. Further the state has been maddeningly slow in posting comparative figures on outcomes that are useful and meaningful to consumers.

So, here is the question. Since BIDMC has and will continue to have an excellent clinical reputation and very good relationships with community hospitals, multi-specialty groups, and other referring physicians, should we abandon our call for structural changes in the payment system? Would we be better off just living with the current arrangement, i.e., receiving rates that are just below those provided to the dominant provider network? Sure, we would never catch up with them in terms of earnings potential, but we would do better than most hospitals in the region. As consolidation and closures continued in the state, we would inherit a share of the clinical volume that will be passed along.

Of course, we would continue to make progress with regard to improving the quality and safety of patient care because that is our mission, but we would not choose to bear disproportionate costs of being innovative compared to other hospitals, and we would discourage talk of such extra innovation in our negotiations with insurers.

Before you comment on all of this, please remember that health care is not like other industries, in which companies are rewarded in the marketplace for being the high-quality, low-cost provider. That situation does not yet exist in the health care system. So, am I better off being a industry leader with regard to that approach, or am I better off biding my time and continuing to follow the traditional path until there is a real sign of change in the marketplace?