Thursday, May 22, 2014

The stage is set

With the Attorney General granting Partners Healthcare System a long-term lease on life as the dominant provider in Eastern Massachusetts, we can now focus on the likely industry structure for the region.

The short version:  Bad news for Tufts Medical Center and Steward Healthcare.  Fair news for Lahey Clinic and BIDMC.  Clear sailing for Partners.

There's nothing on the horizon that looks good for Tufts.  Here's a recent summary of earnings from the Boston Business Journal.  Excerpts:

The health sector’s fast-changing economics are inflicting an increasing degree of pain at Tufts Medical Center in Boston, the latest local care provider to report declines in key patient-related categories. The results are forcing care providers, including Tufts, to rejigger their operations and squeeze costs to offset an increasingly unpredictable and in some quarters shrinking revenue pie.
By all accounts it is proving a challenge to stay ahead of the trend.

Let me say out loud what people have said quietly for years: If Tufts were to disappear tomorrow, its patients could be adequately served by other places in town.  I'm not suggesting this is a desirable outcome, but it is a plausible one.  You can only slowly decapitalize for so long before people notice a deterioration in service and morale.

At Steward, the private equity owners are doing what PE folks do, i.e., extracting cash from the business and hoping to be able to sell it to "a greater fool." The problem is that no such fool has emerged yet. Indeed, potential buyers are likely biding their time, sure that the company's valuation will decline. The current or future owners will be forced to shutter some facilities.  They may also seek to offer ownership of some hospitals to other parties in the region--and the then-current AG will hold his/her breath and allow Partners or one of the other systems to acquire hospitals to preserve the beds in the old industrial cities.

BIDMC and Lahey missed their big chance to merge and establish somewhat of a bookend to Partners.  Now, each is proceeding along its own acquisition path, with catchment areas that overlap a bit but not totally.  Observers wonder, though, what kinds of promises they have made to the community hospitals they are acquiring. The underlying question is whether those hospitals will be profit centers, helping the enterprise, or cost centers, drawing capital from the mother ships.

Through all this, the role of Atrius Health, as the state's largest multi-specialty practice, is key.  By choosing where it will refer patients, Atrius can shift tens of millions of dollars in income between and among the tertiary hospitals.  But there are signs of splintering within Atrius, and its effectiveness as a business enterprise can fall to petty jealousies and other disagreements among its constituent partners.

Partners is essentially immune from all these perturbations, and the slips and slides of other market participants will just serve to enhance its market presence.  Massachusetts will continue to pay above-average health care costs.


Barry Carol said...

The economist, Herbert Stein, told us that if a trend can’t continue, it will stop. If PHS continues to gain market share and sustains higher than market prices and the result is that per capita healthcare costs in MA that are significantly higher than elsewhere, regulators might finally feel compelled to either use their anti-trust authority to force a breakup of the hospital system or jawbone PHS to lower its prices enough to close more of the gap between itself and its regional competitors.

In the meantime, if weaker players are forced to downsize or close some of their capacity to the point that overall capacity in the market shrinks, that could be a good thing if there is, in fact, excess hospital capacity today. I suspect but don’t know that there may be quite a few unnecessary hospital admissions of nursing home patients who suffer minor falls and get sent to the hospital to get “checked out” in part because the homes are fearful of litigation. If a nursing home staff NP thinks the patient is fine and has access to all of the his or her medical records to determine what care has been delivered recently and in the past, these unnecessary admissions would decline if there weren’t significant excess bed capacity.

In addition to transparent information about prices, outcomes, infection rates and preventable readmission rates that I mentioned previously, tort reform that gives doctors safe harbor protection from lawsuits if they followed evidence based guidelines and protocols where they exist would also be helpful in reducing utilization. As I also noted previously, patients and families may be willing to pay a reasonable price premium for PHS’ non-outcomes based amenities, but they should do so willingly and with good and accurate price and quality information at their disposal.

Anonymous said...


Thanks for your insight. While I agree with your overall perspective on Tufts (re: it could disappear tomorrow, and there wouldn't be a real loss to its current patients), the only thing that appears to keep that hospital afloat is its increasing market share in pediatric services. For instance, in the primary service region served by Lowell General Hospital, Tufts has gained inpatient pediatric market share at the expense of the aforementioned hospital for the last 5 years. Now, the hospital will have an increasing presence just north of Boston once its planned merger with Lowell General Hospital is complete. This new system creates more of a threat for other Boston hospitals that offer full-service pediatrics.

The trends seen aroundTufts are quite striking considering that almost every Boston hospital (whether they are academic medical centers or community hospitals) have lost inpatient pediatric market share in Eastern MA for the past 5 years--due in part to the fact that the whole region is losing children in general. Where I specifically agree with you on the Tufts perspective is that the hospital's emphasis on inpatient pediatric discharges may come at the expense of its observation and outpatient volumes--creating negative implications on the quality of its pediatric services. In other words, building up inpatient market share may be a sign of desperation on Tufts' part to build market share and can create a system where they provide unnecessary, costly treatment among a select group of patients.

Thank you for your thoughts once again. Your insight on Atrius Health is also interesting, though I may ask an additional question:

While the role of Atrius is important to the recent decision doled out by the AG, what are the implications for similar groups such as PCHI (Partners Community Health, Inc.) and NEQCA (the physician group for Tufts)?

Paul Levy said...

I'm not sure I understand. The latter two groups remain tightly affiliated with their sponsors. In contrast, Atrius represents the major free agent in the market and therefore can make a big difference at the margin..

Anonymous said...

Thank you for the clarification on Atrius. As the free agent, then that makes sense that they'll make a more substantial difference.