Sunday, December 07, 2014

Shrink to grow

I want to make an outrageous proposal to the board of trustees of Partners Healthcare System (PHS) as they go about deciding on their next CEO:  Hire someone to split up your health care system so that it can productively grow.

This is a matter of good management and good public policy.  Let me explain.

From the beginning, the creation of PHS was never intended to result in a clinical integration of the flagship hospitals, Massachusetts General Hospital (MGH) and Brigham and Women’s Hospital (BWH).  The two organizations have disparate cultures and have always suffered from mutual jealousies, sometimes rising to the level of disdain.  The senior leadership of PHS recognized early on the futility of clinical integration and instead focused on back-office functions—purchasing, information systems, and negotiations with insurers.  On those fronts, they were relatively successful, achieving some economies of scale and other financial gains.

As the system grew, with acquisition of physician groups and incorporation of outlying community hospitals, the clinical split between the flagship hospitals was reinforced.  To this day, physicians and community hospitals refer their patients primarily either to MGH or BWH.  Researchers in each flagship hospital have no special interaction with those in the others, compared to interaction with the other non-PHS Harvard hospitals.  Education programs—undergraduate medical education and residency programs both—likewise are physically and culturally separate in most respects.  Quality improvement programs, to the extent they exist, are hospital-centric.  Development of new clinical initiatives occurs in one place or the other, but seldom in both.

Beyond that, each hospital has used its influence at the PHS headquarters to impair some of the creative energies in the other.  There are plenty of stories, for example, of times an initiative at BWH might have the potential to be truly competitive with an established program at MGH, and only to find itself quashed at the corporate level.  These were not cases of rationalizing care delivery: They were simply opportunities for ego-flexing.

Likewise with regard to philanthropy.  Donors are identified early and separately as MGH targets of opportunity or “BWH people.”  Never the twain shall meet, and their identities are carefully guarded until the gifts are secured.

So this is not truly an integrated health care system, and it will never be.

On the business side, too, the existence of economies of scale has clearly reached a point of diminishing returns.  Look, for example, at the recent $1 billion information systems contract with Epic.  I am willing to bet that disparities in the models of care and administrative requirements between the two segment of PHS are causing that IT system to have higher costs than would occur if it were being constructed for two separate and more culturally distinct organizations.

Likewise, there is little or no advantage in purchasing contracts for this large system that would not be available for two somewhat smaller, but still very large systems.

Further, the centralized PHS corporate office with high salaried people in the high-rent Prudential Center is quite properly viewed with resentment as mere overhead by those both on Fruit Street and Francis Street.

The one thing that might be argued is that PHS has had effective and extreme power in its negotiations with insurance companies, leveraging its network spread to demand higher rates than almost all in the region.  But, even there, a case can be made that the leverage was based on geographic dominance in each subregion—a dominance based either on the presence of the MGH-affiliated branch or the BWH-affiliated branch—as much as the system as a whole.

Meanwhile, though, the size of Partners makes it a target for opponents when it seeks to grow.  Witness the recent objections to the acquisition of community hospitals to the north and south of Boston.  What might make sense from a public policy point of view, with regard to suburban-to-urban secondary-to-tertiary clinical integration, gets squashed or subject to burdensome regulatory requirements.

Everybody interested in health care in Eastern Massachusetts—government officials, business customers, and consumers—seeks to bring about cost savings, service improvements, and a drive to higher quality care.  Notwithstanding lots of recent state legislation, there is a growing recognition that the only way to achieve this is a greater level of competition in this marketplace.  As things stand, Lahey, BIDMC, Tufts and the others can only nibble at the edges, and they scarcely make a difference in the overall results in terms of those desired areas of improvement.  Meanwhile, Steward Healthcare System is showing signs of rapid decline and irrelevance.  Boston Medical Center, too, remains in its safety-net niche, scraping by with diminished state and federal resources.

The best way to generate real competition is to split PHS so that MGH and its network and BWH and its network have separate corporate identities and bottom lines.  This would acknowledge the de facto clinical separation of the two components of the PHS system and give each organization a real incentive to grow—but this time through excellence in care delivery rather than corporate heft.  Each, too, might seek new clinical alliances with the aforementioned Lahey, BIDMC, Tufts, Steward, and BMC, offering the potential for rationalization of care and better use of financial resources.

Would the Partners board have the nerve to dismantle a system they assume is working well?  Frankly, not likely.   But this is not a case of having to worry about accretive value for shareholders or private equity investors.  There are no shareholders here.  The only audience of concern should be the public.  The board owes it to that public to review the twenty-year history of the corporation and objectively determine whether the region is better off for the creation of Partners Healthcare System, and whether the future is better served by one entity or two. Indeed, any potential CEO worth his or her salt should be asking the question before taking the job.

(Note to Attorney General-elect Maura Healey:  Might they be more likely consider a breakup if you tossed out the wrong-headed proposed agreement negotiated by your predecessor and threatened a true antitrust lawsuit jointly with the US Department of Justice?  This is a moment for a great negotiator, and you have the power to set up the situation for an agreement that is truly in the public interest.)


Barry Carol said...

I like your proposal, Paul.

My only questions, from PHS’ perspective are (1) what would happen to insurance reimbursement rates if insurers were suddenly able to contract with either MGH or BWH without having to accept both into their networks or neither as is the case now and (2) are there any significant differences in the cost structures of MGH and BWH and, if so, which one has lower costs?

Anonymous said...

Paul - I just don't see this happening. The Mass AG was prepared to let Partners EXPAND with South Shore Hospital and Emerson Hospital being added to their network so the state does not seem like they are going to push for an actual break up of MGH and B&Ws. Partners won't propose it themselves because they do very well financially with the status quo. So short of the feds opening an investigation I just don't see this happening. I'm not sure this would even get on the feds radar given the state officials don't seem to think there is a problem in terms of Partners driving up prices and driving other systems out of business. North Adams and Quincy closing are just the first wave... when bigger players start falling maybe it will give officials the wake up call they need. I would think NEMC, Steward or a BMC type going under and losing thousands of jobs would bring a lot of pressure on local officials to act. Frankly, it is probably too late anyways given the current size of Partners and the prospect of them bolting on South Shore and Emerson.

nonlocal MD said...

Anon 2:46;

If I understand the to-be-approved agreement between the MA AG and Partners correctly, it will specifically close the federal anti-trust investigation which had been going on for years. The AG called off the feds for Partners which I am sure is a major reason they are so hot for this agreement.

Barry Carol said...

I wonder how much of Partners’ inpatient and outpatient revenue is attributable to patients who were referred there by PHS employed or affiliated doctors and how much is due to patients who independently choose to go to a Partners hospital.

For those who choose to go to the Partners hospital, why did they choose it? Do they really think they’re getting better care or are they making a choice based on amenities akin to choosing a 4 or 5 star hotel over a 2 or 3 star hotel if out-of-pocket costs are the same or at least close?

To the extent that patients know that there are other hospitals that provide comparable care for less cost but still choose to go to a Partners hospital, why is that? Maybe it’s better amenities. Maybe it’s closer to where they live. Maybe they think (possibly incorrectly) that they’re getting better care.

For other hospitals that want to compete on price, they need to know why patients are making the choices they are and how much of a price discount it would take to move the market share needle. That number might or might not exceed their cost advantage.

In theory, if the broader goal is to reduce healthcare costs in the Boston region, it’s possible that could be accomplished even if PHS’ market share increases. If there is, in fact, excess hospital capacity in the Boston region and enough of it goes away to right size regional capacity, even if all of the closures are outside of PHS, total healthcare costs could decline or at least grow more slowly especially if future price increases at PHS hospitals are held to no more than the rate of inflation. For more expensive procedures, medical tourism outside of the Boston area could become a more significant competitive factor over time.

Anonymous said...

Shrink to Grow?

Is your premise that you want MGH and B&W to grow?

They are the highest cost providers for adult tertiary and quaternary care.

If they grow and more patients are referred there, that increases the total cost of health care in Massachusetts, which based on your past writings is not your goal.

The way to foster real competition is to make a compelling low cost network(s). Combining MGH or B&W with a BID, Tufts Med, Lahey or Steward does two bad things.

One it dilutes the price advantage of a BID, Tufts Med, Lahey, or Steward which is the factor that will drive down costs. Toyota and Honda, when they were relatively small, didn't become successful by merging with Ford or GM.

The second bad thing about a merger between MGH or B&W with one of the lower cost health systems, would do is mask a problem, namely MGH and B&W suck too much money out of the health care market.

Partners high cost is currently the focus of much attention. MGH & B&W costs are easy to contrast with other networks because they haven't merged with low cost health systems.

It prevents or makes difficult MGH and B&W growth. I think that is a good thing. [In contrast to your headline to this blog article.]

Even if MGH & B&W are separate, having more community hospitals affiliated with them, and patients ending up in their care will increase health costs.

What we need is low cost, high quality care. We already have the highest cost care in the country and therefore on the planet.

We need a true viable low cost network(s) that can compete with the high cost networks like Partners and proper incentives in the insurance market to make those high quality, low cost networks attractive.

Your suggestion, in my view, doesn't do that.

Paul Levy said...


I think the vast majority of patients going to the PHS tertiary hospitals come from referrals within the system (MDs or community hospitals in the PHS network.)

Barry Carol said...

Thanks Paul. That’s what I thought for MGH and BWH. For the community hospitals in the PHS system, though, if a significant percentage of inpatient admissions come through the ER, are patients bypassing non-PHS community hospitals closer to home to get to a PHS emergency room and, if so, why? Also, for services like imaging where there is much more opportunity to shop around, does PHS command a comparable market share to what they have in the rest of their business?

Paul Levy said...


PHS remains a major provider of ancillaries, notwithstanding other options for same. Simply put, most people still go where their PCP sends them, and th PHS PCPs do their best to keep all business within their network.

Habits die hard in Eastern MA!

Anonymous said...

Paul - Since the Partners PCP network is so large it probably is true that most of the cases at MGH and B&W come from within their system. That being said, take a hospital like Cape Cod that is technically affiliated with Steward but send all of their tertiary care to Partners. In the strange world of healthcare, Cape Cod joined Steward for access to the BCBS AQC contract (fee schedule increases and huge quality dollar potential) but have little to no clinical affiliation with Steward. All of that care is "leakage" to Steward but not really since Cape Cod always referred to Partners. A place like St. Elizabeth's in Brighton leaks a ton of care to nearby facilities such as Newton Wellesley (a Partners hospital) for services like OB/Gyn. There are all sorts of examples of care being delivered at Partners facilities that are coming from other networks. I think the key figure is what percent of healthcare dollars spent in Eastern Mass are delivered at Partners facilities? Their "competitors" may have capacity but more and more of the actual delivery of care is being performed by the physicians, hospitals and ancillaries of Partners Healthcare.