Sunday, October 17, 2010


Is there a subtle, but important bit of misdirection going on in the description of the new role of Caritas Christi as it moves to for-profit status under ownership by Cerberus Capital Management? Such may be evident in this piece by Martha Biebinger on WBUR.

As you read or listen to this story, you might think that the firm is attempting to take on Partners Healthcare System. That is highly unlikely, for several reasons.

First, the Caritas community hospitals are not in areas served by PHS community hospitals. Their targets of opportunity, as I have noted here, are the physician practices and the independent community hospitals in those regions.

Second, the Cerberus system will need access to high level tertiary and quaternary care for those patients who need more advanced treatment than that available in the community. While St. Elizabeth's Hospital can handle some of those patients, it lacks a number of the really high-end clinical services (e.g., solid organ transplant.) It would be too expensive to create these services at St. E's.

What factors will come into play in seeking the affiliation for high acuity cases? Reputation and price. Inclusion of one or both of the two flagship PHS hospitals would have marketing value to the Cerberus accountable care organization. But what to do about the fact that the PHS hospitals and doctors have the highest rates in the region? Answer: Because of its overall financial position, PHS has the ability to shift costs to offer discounts to secure these referrals.

That misdirection may be in the works is prompted by two parts of the story:

First, a quote from the Caritas CEO:

Hospitals that compete with Caritas say that with an infusion of cash the chain could buy up local physician practices and refer all their patients to the nearest Caritas hospital. There is also speculation about which failing hospitals Caritas may buy to expand its network and market power. De la Torre shrugs at the suggestions. “We’re not looking to do it; obviously if a hospital in need is there and it works out, fine. . .

Next, a quote from a PHS official:

“The more competition in the marketplace, it’s better for the patients and better for the consumers, so that has been our general philosophy over the last few years,” says Partners Chief Operating Officer Tom Glynn.

Both of these are so obviously at variance with prior behavior that the only question remaining is whether the quotes have been coordinated.

If so, this hopeful thought by an insurance company executive may be wishful thinking:

“If there’s real competition between two high-quality systems, there’s a better chance of holding down the costs.”

Go back to the chart in Attorney's General's report on payment disparities. You will note that the Caritas hospitals get paid more than their community-based competitors. And, of course, likewise for the PHS doctors and hospitals.

Are we instead witnessing the creation of a new duopoly, where the chance of holding down costs over time is illusory?


Barry Carol said...

“Answer: Because of its overall financial position, PHS has the ability to shift costs to offer discounts to secure these referrals.”

This is yet another argument for complete price transparency including disclosure of actual contract reimbursement rates for all procedures and care episodes. Transparency, couple with tiered in network insurance products that expose members to meaningfully higher coinsurance if they use a more expensive provider whose quality is no better than its competitors, should gradually reduce unjustified price differences among hospitals and large physician groups.

At least in theory, PHS and other high cost providers could be put in the non-preferred tier for most procedures but they could be included in the preferred tier for the three or four or five procedures where they earned a Center of Excellence designation. Regulators need to ensure, however, that powerful providers cannot simply refuse to sign contracts that are structured this way.

Anonymous said...

Let's see, it may be that the two largest hospital systems in Mass are going to collaborate. Is it time for the Justice Department to think about anti-trust here?

Anonymous said...

The Federal Government just moved in on Blue Cross and Blue Shield of Michigan for the same type of back room deal that Blue Cross of Massachusetts and Partners structured a few years back so it wouldn't surprise me at all if the feds take aim at the local BCBS and Partners price manipulation as well. We all know the local politicians won't act to break up the Blue Cross - Partners deal so if the feds don't do it, no one will. If the feds move in it will probably be very hard for BCBS of Mass and/or Partners to make any big strategic deals.