Sunday, December 12, 2010

North by Northwest Misdirection

It may be worthwhile to deconstruct this section of a recent Boston Globe story by Rob Weisman about the acquisition of two for-profit hospitals by Cerberus Capital Management. You will recall that Cerberus recently took over nonprofit Caritas Christi Health Care last month and converted it to a for-profit business.

I have discussed below the potential for misdirection in press statements about the Cerberus system. Are we seeing it again? Is a system that is reportedly under review for anti-trust issues using this news item as argument against those possible concerns?

But Peter K. Markell, vice president of finance at Partners HealthCare System Inc., the Boston parent of Massachusetts General Hospital and Brigham and Women’s Hospital, said Steward could offer more competition for downtown teaching hospitals if de la Torre is successful in stemming the leakage of patients from Eastern Massachusetts communities to Boston.

Markell said that Mass. General and Brigham and Women’s are also community hospitals for residents in and around Boston.

If the Steward network draws away routine health care services, it could drive up the cost of the more complex medical care offered at Partners hospitals, he warned.

“Any competition is always a threat,’’ Markell said.

How does ownership by Cerberus make the competition vis-a-vis the Partners hospitals more real? Is there an indication that there is currently a large outflow of routine (as opposed to tertiary) care from these two community hospitals to Boston and specifically to MGH and the Brigham?

The two hospitals, Merrimack Valley and Nashoba Valley, are in Haverhill and Ayer, respectively. The former is 26 miles north of Boston. This takes 43 minutes to traverse in average traffic, along a route that never has average traffic. (See map to the right.) The latter is 29 miles northwest of Boston, with a travel time of just over an hour in average traffic, along a highway that most people would rather avoid. (See map below.) It is hard to imagine that the residents of these communities are opting to go to Boston for most secondary care that can be treated locally.

Perhaps Partners is suggesting that such tertiary referrals as will be sent to Boston will now go to the Cerberus-owned St. Elizabeth's Medical Center, rather than the Partners hospitals. Maybe to some extent. But the jury is still out on that front.

For example, to the extent there are currently referrals from Nashoba Valley, they are just as likely to go to U. Mass. Memorial Medical Center in Worcester, 24 miles away, and 41 minutes on lightly traveled roads. (See map to the right.) Some other referrals also come to BIDMC. If Cerberus succeeds in diverting those referrals to St. Elizabeth's, that is not a shift in market share away from Partners.

But the really surprising quote is this one: If the Steward network draws away routine health care services, it could drive up the cost of the more complex medical care offered at Partners hospitals.

Is this a suggestion that secondary care subsidizes tertiary care in the Partners system? I have never seen data from other tertiary hospitals that would support the proposition that low acuity care is more profitable than high acuity care. On the other hand, perhaps the differential in insurance payments that Partners receives offers benefits along these lines that are not representative of other hospitals. As always, a transparent presentation of such data would help evaluate whether the statements made in this story are valid.

In any event, isn't the whole point of current public policy to deliver the right care in the right setting? If Cerberus is truly able to make it more attractive for low acuity patients to be served in a lower-cost community setting, that would seem like the right thing to do.


Barry Carol said...

From a societal and healthcare system standpoint, we are absolutely better off if we can deliver care in the lowest cost setting that can do the job right and well. If Partners loses some of its routine care business, other things equal, its occupancy rate will decline. Since hospitals are inherently high fixed cost businesses, lower occupancy will drive up average costs for ALL procedures and services. That’s true for any hospital that finds itself in similar circumstances. When a decline in occupancy rate appears to be secular as opposed to cyclical, the hospital probably needs to reduce its number of licensed beds. Fair competition is a good thing in all fields including healthcare even if Partners doesn’t seem to think so.

Anonymous said...

As usual, Barry's comment is very astute. I find the Partners VP's comments puzzling as well as self-serving.

"Markell said that Mass. General and Brigham and Women’s are also community hospitals for residents in and around Boston."

Surely he recognizes that this is not a sustainable (nor necessary) situation for American health care? Or is it institutional narcissism, that the consequences don't matter as long as Partners continues to gather in revenue?

Partners has yet to truly come to grips with its high costs. They say all the right things, sometimes, but comments like these betray the real institutional imperative. Extrapolated country-wide, this is why we are making no progress.

nonlocal MD

Anonymous said...

The purchase of Nashoba Valley Medical Center by Steward will have a direct impact on Beth Israel Deaconess Medical Center. The Emergency Room physicians are employees of the Beth Israel Medical Center and they have had this contract for quite some time. What if Caritas wants to staff the Emergency Room with its own physicians? Most patients needing more than routine care such as cardiac catheterizations, vascular surgery, stroke care, are referred to the BI for their care. Trauma cases are most always life flighted to the BI. Will Caritas now demand that all these cases be sent to their flag ship hospital Saint Elizabeths? Appears that the Beth Israel could be about to take a big hit in all of this.

catsandmusic said...

Paul; didn't the BI try to do the same thing with Nashoba a few years ago? Not sure why it didn't take, but the reasoning must have been similar--get those pricy tertiary referrals directed exclusively to one place.

It is not like Caritas, oops Cerberus, is using a new business model.

Anonymous said...


Caregroup, the holding company that holds BIDMC, actually sold Nashoba to Essent a few years ago.

Anon 12:23,

The ED staff are not employees of BIDMC. They are members of the physician organization, which was invited to proved those emergency services a few years ago. That probably results in some -- certainly not all -- cases being referred to BIDMC. Many referrals to BIDMC also occurred before our MDs ran the ED, because of long-standing relationships between the community doctors in the Nashoba area and BIDMC doctors.

Ditto, as noted in the post, between those community doctors and U. Mass Memorial.

It could certainly be the case that some of those patients may now end up going to St. Elizabeth's rather than BIDMC or U. Mass. But, ultimately, that depends more on the confidence that local doctors have in Sr. E's than who owns Nashoba.

Anonymous said...

er, that's "invited to provide those" instead of "invited to proved those"

Anonymous said...

Barry is correct in his explanation of how an outmigration of secondary care would increase average costs...and he is also correct that reducing the number of licensed beds would (most likely) allow Partners to continue operating at their current margin level (as a %). What he overlooks is that losing this business and reducing their capacity would also reduce their TOTAL margin which is ultimately more important than margin as a %.

Because AMCs have responsibilities beyond optimizing their clinical "factory" (e.g. providing funding for programmatic growth, education, et al), Partners' is right to view threats to their total margin as bad.

I agree that the right care/right setting and so forth should be the aim for health care delivery - however the rules/incentives will need to change so that providing care in that manner is the rational choice. Until that happens, Partners is not making the rules, they are simply playing by them with the best interest of Partners in mind - which is really what managers are supposed to be doing (even if that includes some obfuscation in the press...and even if another manager acting in the best interests of his institution then calls attention to your obfuscation on his blog) so I don't see any problems here...

Anonymous said...

Anon 8:43, I have a couple problems with your post. Being out of town, I only know what I read in the press, but am interested because there is a similar 800 lb gorilla in my area and the rhetoric is the same.
First, I hear a lot of stamping and blowing from Partners about competition, but not from BIDMC or anyone else, with similar AMC responsibilities and smaller margins than Partners:

"The tentative agreement to acquire Merrimack Valley and Nashoba Valley is not likely to alter the competitive landscape, said Paul F. Levy...."

This rhetoric suggests that Paul's point about misdirection may be a good one.

Second, you have a narrow, if technically defensible, view of what managers are supposed to do. BIDMC and its physicians have reportedly entered into new types of futuristic payment agreements, while Partners does everything possible to maintain the status quo of its dominance. This is both a less societally responsible attitude, and possibly destructive in that the status quo is going to change by necessity, sooner or later. You may be winning in the short run, but adapt or die, as they say.

nonlocal MD

Anonymous said...

@Nonlocal MD,

To your first point, there is plenty of conversation from others about competition. Paul uses this blog, for example, to frequently comment on the market power of Partners (which, in my opinion, is totally fair game.)

To your second point, I'm not sure if your concern is with my position or with the impact, so I'll comment on both.

With respect to the position that a manager is supposed to act in the best interests of his/her institution. I am perhaps a bit non-traditional...I am an administrator at an AMC (but not the CEO, hence the anonymous posting) and have an MBA from a top-tier school, and worked for a top-tier consulting firm with primarily for-profit clients before moving into health care delivery. I believe that the socially optimal thing for managers to do is to act in the best interest of their institution. Please note that there is room in that definition for "non-profit" activities (e.g. charity care, education, and so on). To the degree that managers acting in this way does not produce a socially optimal outcome, it is up to policymakers to change the "rules of the game" such that managers change their behavior. My fundamental point here is not that the market is totally efficient in a "Friedman-esque" way but that the different players in the health care delivery value net will give the country the best result possible (cost/quality) within the constraints of our unique society by representing their particular "constituencies" - whether that be Hospital Boards, the voting public, or the policymakers who govern regulatory bodies - to the best of their ability. Hope, or desire for people to act any other way is, I believe, a fantasy that ignores both individual incentives and the composition of the different parts of American society.

With respect to the efforts by Partners to maintain the status quo - it follows from my immediately previous comment that, if the status quo is in your interest you should work to further also follows that if the status quo is not in your interest you should work to tear it down (by taking "futuristic payment agreements" that might drive additional volume to your organization, for example). So, you may believe that the status quo won't persist and that Partners won't be able to adapt and will therefore fall behind, say, BIDMC. Although I don't agree that this will happen, I think you may be unintentionally agreeing with me in that you feel that the primary flaw of the administrators at Partners is that their "status quo" strategy may not enable them to continue their dominant market position...and that, were they to act in the best interest of their organization, they should abandon it.

Anonymous said...

Thank you for this article. You are right. Nashoba is good for us and most likely we would go to UMass.

Anonymous said...

People who live in and around Haverhill and Ayer will tell you that just about any change will help those two hospitals. In their current state, it is actually reasonable to assume that a measurable percentage of local population would indeed travel to Boston hospitals for secondary care.