How Large Health Care Organizations Set the "Rules of the Game" to Dominate Health Care

The notion that health care is increasingly "dominated by large, bureaucratic organizations which do not honor ... [its] core values"(1) just made it into a main-stream, large circulation US medical journal.  A brand new commentary in the American Journal of Medicine(2) by Supri and Malone declared:

To explain why we have the most expensive health care system in the world and yet one of the lowest performing, we need to take a perspective that focuses on the US institution of medicine as a whole. We expose the hidden rules by which this institution operates and discuss how its powerful organizations shape, control and perpetuate this ailing system.

The article then described the main types of large, powerful health care organizations:

The US institution of medicine is not a single, comprehensive and cohesive system of health care. Instead, it is comprised of a myriad of large and powerful organizations, including insurance companies, Health Maintenance Organizations (HMOs), corporate for-profit hospital chains, and pharmaceutical companies. This institutional structure is large and vast, and has over the years become ever more labyrinthine.

Note that there are even more kinds of large and powerful health care organizations, including non-profit hospitals and hospital systems, employers acting as payers for health care, government agencies, device and biotechnology companies, health care information technology companies, public relations firms, medical education and communication companies, contract research organizations, professional societies, patient advocacy groups, accrediting bodies, health care charities, etc, etc, etc.  But the point is that the large organizations, not the patients, the physicians, nor the public dominate.

Supri and Malone suggested that each kind of organization sets the "rules of the game," that is, the priorities important to the organization, which are very different from the core values that many of us believe ought to guide health care:

Not only is the institutional structure large, it is dynamic, and actively creates, shapes, and maintains the institution of medicine. It does this through what we call setting the “rules of the game”; that is, by imposing the terms by which the system operates.

For example,

Insurance companies have set the rule 'restrict choice and coverage.' They enact this through their elaborate system of copayments and deductibles, exclusion clauses and loopholes, each designed to deter patients from claiming the health care they need, and to override physicians' medical judgment.

Similarly, it cited the rules for managed care, "manage care," that is, "restrict utilization of health care" regardless of patients' needs; the pharmaceutical industry, "charges as much as we want, because insurance will pay;" and "corporate hospital chains ... test as much as we want, because insurance will pay." Thus it made the point that US health care now is driven by the priorities of large organizations whose interests at best may disregard and at worst may conflict with providing the best possible care for individual patients.

Further, the resulting complexity is to the benefit of the large organizations:

As each organization has created its own 'rules of the game,' the institution of medicine has grown into a complex entity that few really understand. This very complexity actually works to the advantage of the organizations that comprise the system, creating an operating environment that allows them to siphon off billions of dollars. It is one of the main reasons why the cost of health care has spiraled out of control.

This is very important, and suggests that the system will just become more bureaucratic, complex and opaque until it finally collapses.

Finally, it raised the point that the organizations collude to promote their priorities at the expense of patients' and the public's health:

Although each organization sets their 'own rules of the game,' they are also strongly and deeply interlinked, and cooperate and collaborate to protect the system of health care that they have devised, so that it remains intact and continues to serve their own interests.

Although  Supri and Malone did not differentiate the leadership of large organizations from the organizations themselves, we have pointed out that the top leaders of various kinds of organizations seem to think alike, becoming a sort of de facto executives' guild, with a "superclass" of oligarchs at its pinnacle.  The guild may be enabled by these leaders' often huge compensation and other benefits and corporate arrangements that keep them shielded from the vicissitudes of daily life that patients, health care professionals, and lower level organizational employees must face.  Furthermore, the leadership of these organizations is often interlinked, for example, by leaders of one organization serving on boards of directors or trustees of others.

It is so nice for us at Health Care Renewal to have some company. It is a very important blow to the anechoic effect for these sorts of views to appear in a mainstream medical journal.

When I interviewed a motley group of physicians and health care professionals in the early part of the 21st century, many expressed concerns about how medicine had been taken over by large organizations which did not honor its values. The article published in 2003(1) in Europe which tried to summarize their concerns probably could not have been published at that time in the US, but its publication remote from its main topic only made it more anechoic. It may be that an article published in a respected American journal will generate some more echoes. Here is hoping that Health Care Renewal can help create some such echoes. 

Obviously, those who lead large organizations in health care will not be happy about that, so it is possible this article's appearance in a main-stream journal may incite some pushback, perhaps generated by the public relations machines of the large health care organizations (see this post about how Wendell Potter's excellent Deadly Spin documented how large organizations use propaganda and disinformation to undermine viewpoints that threaten their domination.)

In conclusion, I strongly support Supri and Malone's final sentiments:

The sum of the 'rules of the game' devised by these organizations has resulted in a fragmented, haphazard and broken system of health care. Reform is long overdue, and demands root and branch transformation of the 'rules of the game' governing the US institution of medicine. This requires us to understand these rules, who is setting them, and how these rules are being used to exploit the system of medicine. Only then can we begin to heal our ailing health care system.

Well said!

But now almost 8 years since the publication of "A Cautionary Tale," we still have a long way to go.

References


1.  Poses RM. A cautionary tale: the dysfunction of American health care.  Eur J Inte Med 2003; 14: 123-130.  Link here.
2.  Supri S, Malone K. On the critical list: the US institution of medicine. Am J Med 2011; 124: 192-193.  Link here. 

How Large Health Care Organizations Set the "Rules of the Game" to Dominate Health Care

The notion that health care is increasingly "dominated by large, bureaucratic organizations which do not honor ... [its] core values"(1) just made it into a main-stream, large circulation US medical journal.  A brand new commentary in the American Journal of Medicine(2) by Supri and Malone declared:

To explain why we have the most expensive health care system in the world and yet one of the lowest performing, we need to take a perspective that focuses on the US institution of medicine as a whole. We expose the hidden rules by which this institution operates and discuss how its powerful organizations shape, control and perpetuate this ailing system.

The article then described the main types of large, powerful health care organizations:

The US institution of medicine is not a single, comprehensive and cohesive system of health care. Instead, it is comprised of a myriad of large and powerful organizations, including insurance companies, Health Maintenance Organizations (HMOs), corporate for-profit hospital chains, and pharmaceutical companies. This institutional structure is large and vast, and has over the years become ever more labyrinthine.

Note that there are even more kinds of large and powerful health care organizations, including non-profit hospitals and hospital systems, employers acting as payers for health care, government agencies, device and biotechnology companies, health care information technology companies, public relations firms, medical education and communication companies, contract research organizations, professional societies, patient advocacy groups, accrediting bodies, health care charities, etc, etc, etc.  But the point is that the large organizations, not the patients, the physicians, nor the public dominate.

Supri and Malone suggested that each kind of organization sets the "rules of the game," that is, the priorities important to the organization, which are very different from the core values that many of us believe ought to guide health care:

Not only is the institutional structure large, it is dynamic, and actively creates, shapes, and maintains the institution of medicine. It does this through what we call setting the “rules of the game”; that is, by imposing the terms by which the system operates.

For example,

Insurance companies have set the rule 'restrict choice and coverage.' They enact this through their elaborate system of copayments and deductibles, exclusion clauses and loopholes, each designed to deter patients from claiming the health care they need, and to override physicians' medical judgment.

Similarly, it cited the rules for managed care, "manage care," that is, "restrict utilization of health care" regardless of patients' needs; the pharmaceutical industry, "charges as much as we want, because insurance will pay;" and "corporate hospital chains ... test as much as we want, because insurance will pay." Thus it made the point that US health care now is driven by the priorities of large organizations whose interests at best may disregard and at worst may conflict with providing the best possible care for individual patients.

Further, the resulting complexity is to the benefit of the large organizations:

As each organization has created its own 'rules of the game,' the institution of medicine has grown into a complex entity that few really understand. This very complexity actually works to the advantage of the organizations that comprise the system, creating an operating environment that allows them to siphon off billions of dollars. It is one of the main reasons why the cost of health care has spiraled out of control.

This is very important, and suggests that the system will just become more bureaucratic, complex and opaque until it finally collapses.

Finally, it raised the point that the organizations collude to promote their priorities at the expense of patients' and the public's health:

Although each organization sets their 'own rules of the game,' they are also strongly and deeply interlinked, and cooperate and collaborate to protect the system of health care that they have devised, so that it remains intact and continues to serve their own interests.

Although  Supri and Malone did not differentiate the leadership of large organizations from the organizations themselves, we have pointed out that the top leaders of various kinds of organizations seem to think alike, becoming a sort of de facto executives' guild, with a "superclass" of oligarchs at its pinnacle.  The guild may be enabled by these leaders' often huge compensation and other benefits and corporate arrangements that keep them shielded from the vicissitudes of daily life that patients, health care professionals, and lower level organizational employees must face.  Furthermore, the leadership of these organizations is often interlinked, for example, by leaders of one organization serving on boards of directors or trustees of others.

It is so nice for us at Health Care Renewal to have some company. It is a very important blow to the anechoic effect for these sorts of views to appear in a mainstream medical journal.

When I interviewed a motley group of physicians and health care professionals in the early part of the 21st century, many expressed concerns about how medicine had been taken over by large organizations which did not honor its values. The article published in 2003(1) in Europe which tried to summarize their concerns probably could not have been published at that time in the US, but its publication remote from its main topic only made it more anechoic. It may be that an article published in a respected American journal will generate some more echoes. Here is hoping that Health Care Renewal can help create some such echoes. 

Obviously, those who lead large organizations in health care will not be happy about that, so it is possible this article's appearance in a main-stream journal may incite some pushback, perhaps generated by the public relations machines of the large health care organizations (see this post about how Wendell Potter's excellent Deadly Spin documented how large organizations use propaganda and disinformation to undermine viewpoints that threaten their domination.)

In conclusion, I strongly support Supri and Malone's final sentiments:

The sum of the 'rules of the game' devised by these organizations has resulted in a fragmented, haphazard and broken system of health care. Reform is long overdue, and demands root and branch transformation of the 'rules of the game' governing the US institution of medicine. This requires us to understand these rules, who is setting them, and how these rules are being used to exploit the system of medicine. Only then can we begin to heal our ailing health care system.

Well said!

But now almost 8 years since the publication of "A Cautionary Tale," we still have a long way to go.

References


1.  Poses RM. A cautionary tale: the dysfunction of American health care.  Eur J Inte Med 2003; 14: 123-130.  Link here.
2.  Supri S, Malone K. On the critical list: the US institution of medicine. Am J Med 2011; 124: 192-193.  Link here. 

The Rise of the Corporate Physician - the End of the (Health Care) World As We Know It?

In discussing how concentration and abuse of power threatens health care professionals' values and professionalism, we have discussed how ostensibly academic institutions value faculty more for their earning power than their academic abilities.  We have discussed how financial relationships between physicians and drug, biotechnology, device and other companies risk abuse of entrusted power.  But up to now, I have been comforted by the hope that physicians in small independent practices who do not have such conflicts of interest are trying to uphold their professional values, even as they were buffeted by the perverse incentives imposed by managed care organizations/ health insurance companies and government insurance (e.g., US Medicare whose payments are controlled by the RUC).

However, a recent article in SmartMoney suggests that the end of the independent physician is nigh:

Remember the solo family doctor? In places like Springfield, it has become increasingly likely that she's collecting a paycheck from a large regional hospital—and practicing medicine according to the hospital's strict playbook. The experience in Springfield is just a needle prick compared with what's going on nationwide. At least one in six doctors—more than 150,000 nationwide—now works as an employee of a hospital system. And with about half of recent medical school graduates deciding to work for hospitals and many established doctors looking to unload their practices amid the tough economic climate, what was a trickle of change has turned into a torrent. Jim Pizzo, a Chicago-area hospital consultant, says the blistering pace of these mergers is leading some colleagues to joke that there are two types of physicians today: 'Those employed by hospitals and those about to be.'

So we are seeing physicians who practiced solo or in physician-lead, physician-run group practices becoming employees of large health care organizations. And here on Health Care Renewal, we know how most large health care organizations are run.

This appears to be an unintended consequence of our recent US health care "reform" law:

But hospital executives also believe that buying doctors' practices could yield a big payday, thanks to a different provision in the health care law. The law will encourage doctors and hospitals to share some payments when treating each patient; as collaborative teams, they could earn bonuses for holding down costs and meeting quality markers. 'The real question for everyone is how that pie—that money—is going to get split up,' Goertz says; hospitals think they'll have the upper hand if they employ the doctors that they're sharing their banana crème with. And that's touched off a flurry of mergers everywhere—from Seattle to Roanoke, Va.

The name of these supposedly collaborative organizations, which are turning out to simply be hospital systems which have purchased physicians' practices and now employ physicians, is "accountable care organizations," which now appears ironic at least.

The article detailed some of the adverse effects to be expected when accountable care organizations become hospital systems with employed physicians providing patient care.

Increased Costs with Decreased Care

Ruth Taylor, a 44-year-old woman in Bozeman, Mont., started seeing Robert Hathaway as her doctor during college, and she stuck with him through everything from routine blood tests to a kidney transplant. Taylor, a professional nurse with warm blue eyes, describes Hathaway as a 'classic small-town doctor' who knew all his patients by name and socialized with them at local basketball games; he was accessible and thorough—even catching a health problem of hers that other doctors had missed. But after Hathaway sold his practice to the local hospital, Taylor says, things began to sour. She was more likely to be assigned to see the physician assistant rather than Hathaway himself. And when she went in for a comprehensive physical (also run by the assistant) in late 2008, she was charged $360, more than double what she'd paid for a workup in previous years.

Imposition of Dysfunctional Health Care Information Technology

On this blog, Dr Scot Silverstein frequently posts about how poorly designed and implemented commercial health care information technology may have harms that outweigh any benefits, and how these systems are rarely objectively evaluated. Employed physicians are likely to be required by their new executive overlords to use commercial health care IT that benefits the managers and their strategies, but may not benefit patient care:

Last spring Hospital Sisters tried to shift all of its Springfield medical offices to electronic medical records simultaneously. But there wasn't enough tech support to deal with all the problems physicians ran into on day one, and wait times spiked at the system's walk-in locations. Nenaber, a soft-spoken 64-year-old with wire-rim glasses, sounds acquiescent about the situation. 'We're getting the hang of these things,' he says slowly, sitting at his desk overlooking a gas station and a strip-mall parking lot. But his practice is still waiting for its electronic payoff

Increasing Prices by Providing Care in the Hospital

Now that the acquisition spree is in full swing, some experts worry that price increases could become the dominant narrative for patients. When hospitals run medical practices, federal law allows them to add substantial 'facility fees' to patients' bills to cover overhead expenses. The new bosses also often rip equipment like X-ray machines and MRIs out of the physician's office, preferring to have patients get those tests from radiologists at the hospital. That, too, can cost patients. A consumer with a high-deductible Aetna plan, for instance, would pay up to $1,400 for an MRI of her back at the University Medical Center at Princeton, N.J., according to data that the insurer makes available to its members. The same scan would cost about a third as much at nearby Radiology Affiliates of New Jersey, a nonhospital facility. Based on a review of insurance databases and state regulatory records, that's a fairly typical price gap

Increasing Prices by Market Domination

Price increases also have the potential to bleed outward—affecting not only the patients of the absorbed doctor, but also the cost of health care citywide. That's because when hospitals sit down at the bargaining table with insurers, they're almost always able to negotiate higher payment rates for their big groups of doctors than a lone physician with little bargaining power

Despite the usual spin provided by the would-be monopolists:

Fast-growing hospital systems, including Hospital Sisters and Bozeman Deaconess, say that their growth will eventually make care more efficient and bring costs back down, since they'll be able to cut back on unnecessary care and duplicate tests

I am sure that the 19th century robber barons made the same pitch about increasing efficiency. Of course, the efficiency mainly benefits the insider managers.

By the way, of course, the hospital systems own public relations machines and lobbyists are now busy attacking any restrictions on such concentrations of power, while the hospital managers figure out how to game the system to increase their market domination before the regulators notice:

As more patients face such disruptions, regulators are taking notice. In October, the Federal Trade Commission and the Department of Health and Human Services met with doctors, insurers and other health officials to discuss the referral and pricing problems that could arise from 'accountable-care organizations'— those new groups of hospitals and doctors that will share financial incentives. The Federal Trade Commission will offer guidelines on what's permissible by midyear. But hospitals are already lobbying for accountable-care groups to be exempt from antitrust and antifraud rules, even as they scoop up more and more medical practices. Under current regulations, officials in Washington must green-light all mergers involving companies valued at more than $63 million. But by buying up tiny medical practices one at a time, critics say, hospitals stay below the threshold and avoid getting much attention. And by the time regulators settle on more-formal legal guidelines, those mergers may be hard to undo, says Cory Capps, a Washington economist specializing in health care antitrust issues.

Excess and Unnecessary Utilization via "Leakage Control"

With big hospital systems now owning physician practices, and practicing physicians directly answering to executives, the push will be on to maximize use of the most lucrative services. Once the hospital systems have made employees out of the physicians, it is easy to pressure their own employed physicians to refer patients to the hospital units that can bill most lucratively:

By their own admission, most hospitals are eager to keep patient referrals under the same corporate umbrella, to save on costs and share medical records but also to boost revenue. The hospitals say they wouldn't force an internist, for example, to refer a patient with heart problems to their own cardiologists, but critics say there's certainly financial pressure. Under a little-noticed regulation that took effect in 2007, hospitals are allowed to pay doctors less if they don't do enough internal referrals.

Doctors in Bozeman and Springfield who granted interviews said they didn't feel pressure to be 'team players' with referrals. But some of those who've left large health systems tell a different story, including Mark Callenberger, an orthopedist in Merritt Island, Fla. Callenberger says that the hospital group where he used to work urged him to direct more patients to the MRI machine owned by the hospital. The doctor preferred a more advanced machine at a private practice that he says offered clearer pictures. But after he ignored the recommendations, Callenberger says, the hospital told his office manager to schedule patients at the hospital's MRI anyway, leaving him to perform surgery using 'crummy images.' (The hospital declined to comment on Callenberger's case but says its doctors can use whatever facilities they choose.) Patients may never know about these power struggles, because doctors aren't required to disclose how they choose specialists. And while patients who ask can always see a specialist outside the network, in practice few are likely to challenge their doctors' judgment, says Bruce A. Johnson, a Denver health care lawyer. 'Face it, when we're really sick,' says Johnson, 'if the doctor tells us to jump off a roof, we'll probably consider doing it.'

Note that we discussed (here and here) the example of a for-profit hospital system with a large number of physician employees pushed to choke off "leakage" of patient referrals outside the system.

Summary

The overarching problem is that employed physicians now must answer to managers and executives who may put financial goals, and their own enrichment, ahead of physicians' values, and specifically will choose increased revenue over providing the best possible care to individual patients:

. Executives here are also hoping to push the needle further—standardizing everything from how long patients wait on hold to the ease of parking at the doctor's office (valets, luxury-restaurant style, are one solution under consideration).

Still, Mikell acknowledges, 'doctors don't want follow-the-directions, cookbook medicine.' And for many physicians, the idea of following new rules triggers a much larger unease at giving up their independence—a feeling of loss, both for the businesses they built and for their patients. Back in Bozeman, Blair Erb, the sole cardiologist in town, is a picture of resignation as he prepares to sign a contract with Deaconess. 'I feel defeated,' Erb says, looking around at the office furniture he and his wife, Liz, chose from a catalog years ago. The weathered ranchers and bundled-up women that come through his door mostly express disbelief when they hear that this frank-talking Tennessee native will sell his practice. His staffers say they're not looking forward to the questions the hospital's medical records system will soon prompt them to ask patients. (Do you wear a bike helmet regularly? Do you have a smoke detector?) 'We'll try to retain as much professional independence as possible,' Erb says, gazing at the hospital building, whose bulk he can see through his window. 'But the fact of the matter is, we'll have a new master.'

So I for one do not welcome our new executive overlords.

We have posted about numerous examples of health care organizational leaders who put their own enrichment ahead of the mission. Now even ostensibly non-profit hospital systems are increasingly competing against for-profit systems. We have seen, as noted above, an example of a for-profit system that seems to betting everything on a business strategy to reduce "leakage" of patient referrals.  We can expect that non-profit hospital systems will have to act more like for-profit systems, and the perverse financial incentives given the managers of all hospital systems will lead to pressure on physicians to forgo their responsibilities to provide the best care to individual patients in favor of actions that will bring in the most money in the shortest time.

We seem to be witnessing the rise of the corporate physician, the rise of a physician who must first answer to managers who never committed to putting patient care first, who may have no sympathy for physicians' core values, who may receive huge incentives to maximize short-term revenue no matter what. Such a rise of corporate physicians would be unprecedented in the US, and I believe in any developed country.

The rise of the corporate physician would require patients to put their trust in corporations, rather than individual doctors, in the era of the global financial collapse, in the new gilded age.

We may be seeing the end of health care world as we know it. The upcoming brave new world of health care may be worse that we can imagine.

What is to be done? - I rarely have ventured into specific policy suggestions, but I think that the consequences of the well-intended "accountable care organization" blunder may be so severe that I must so venture now. We must derail the movement towards "accountable care organizations." Any movement to make organizations more accountable cannot do so by making most professionals into employees answering to the sorts of ill-informed, incompetent, self-interested, conflicted or even corrupt leaders that we have been writing about for more than six years on Health Care Renewal.  We need to make it impossible for for-profit companies to employ physicians to take care of patients.  Maybe we need to think about making it impossible for for-profit companies to provide patient care at all, and for for-profit companies to sell health insurance.  Meanwhile, we need to ensure the accountability, integrity, transparency, and honesty of leaders of health care organizations.

If we do not reverse the current trends, anyone who wants good health care may have to look for it somewhere other than in the US.

The Rise of the Corporate Physician - the End of the (Health Care) World As We Know It?

In discussing how concentration and abuse of power threatens health care professionals' values and professionalism, we have discussed how ostensibly academic institutions value faculty more for their earning power than their academic abilities.  We have discussed how financial relationships between physicians and drug, biotechnology, device and other companies risk abuse of entrusted power.  But up to now, I have been comforted by the hope that physicians in small independent practices who do not have such conflicts of interest are trying to uphold their professional values, even as they were buffeted by the perverse incentives imposed by managed care organizations/ health insurance companies and government insurance (e.g., US Medicare whose payments are controlled by the RUC).

However, a recent article in SmartMoney suggests that the end of the independent physician is nigh:

Remember the solo family doctor? In places like Springfield, it has become increasingly likely that she's collecting a paycheck from a large regional hospital—and practicing medicine according to the hospital's strict playbook. The experience in Springfield is just a needle prick compared with what's going on nationwide. At least one in six doctors—more than 150,000 nationwide—now works as an employee of a hospital system. And with about half of recent medical school graduates deciding to work for hospitals and many established doctors looking to unload their practices amid the tough economic climate, what was a trickle of change has turned into a torrent. Jim Pizzo, a Chicago-area hospital consultant, says the blistering pace of these mergers is leading some colleagues to joke that there are two types of physicians today: 'Those employed by hospitals and those about to be.'

So we are seeing physicians who practiced solo or in physician-lead, physician-run group practices becoming employees of large health care organizations. And here on Health Care Renewal, we know how most large health care organizations are run.

This appears to be an unintended consequence of our recent US health care "reform" law:

But hospital executives also believe that buying doctors' practices could yield a big payday, thanks to a different provision in the health care law. The law will encourage doctors and hospitals to share some payments when treating each patient; as collaborative teams, they could earn bonuses for holding down costs and meeting quality markers. 'The real question for everyone is how that pie—that money—is going to get split up,' Goertz says; hospitals think they'll have the upper hand if they employ the doctors that they're sharing their banana crème with. And that's touched off a flurry of mergers everywhere—from Seattle to Roanoke, Va.

The name of these supposedly collaborative organizations, which are turning out to simply be hospital systems which have purchased physicians' practices and now employ physicians, is "accountable care organizations," which now appears ironic at least.

The article detailed some of the adverse effects to be expected when accountable care organizations become hospital systems with employed physicians providing patient care.

Increased Costs with Decreased Care

Ruth Taylor, a 44-year-old woman in Bozeman, Mont., started seeing Robert Hathaway as her doctor during college, and she stuck with him through everything from routine blood tests to a kidney transplant. Taylor, a professional nurse with warm blue eyes, describes Hathaway as a 'classic small-town doctor' who knew all his patients by name and socialized with them at local basketball games; he was accessible and thorough—even catching a health problem of hers that other doctors had missed. But after Hathaway sold his practice to the local hospital, Taylor says, things began to sour. She was more likely to be assigned to see the physician assistant rather than Hathaway himself. And when she went in for a comprehensive physical (also run by the assistant) in late 2008, she was charged $360, more than double what she'd paid for a workup in previous years.

Imposition of Dysfunctional Health Care Information Technology

On this blog, Dr Scot Silverstein frequently posts about how poorly designed and implemented commercial health care information technology may have harms that outweigh any benefits, and how these systems are rarely objectively evaluated. Employed physicians are likely to be required by their new executive overlords to use commercial health care IT that benefits the managers and their strategies, but may not benefit patient care:

Last spring Hospital Sisters tried to shift all of its Springfield medical offices to electronic medical records simultaneously. But there wasn't enough tech support to deal with all the problems physicians ran into on day one, and wait times spiked at the system's walk-in locations. Nenaber, a soft-spoken 64-year-old with wire-rim glasses, sounds acquiescent about the situation. 'We're getting the hang of these things,' he says slowly, sitting at his desk overlooking a gas station and a strip-mall parking lot. But his practice is still waiting for its electronic payoff

Increasing Prices by Providing Care in the Hospital

Now that the acquisition spree is in full swing, some experts worry that price increases could become the dominant narrative for patients. When hospitals run medical practices, federal law allows them to add substantial 'facility fees' to patients' bills to cover overhead expenses. The new bosses also often rip equipment like X-ray machines and MRIs out of the physician's office, preferring to have patients get those tests from radiologists at the hospital. That, too, can cost patients. A consumer with a high-deductible Aetna plan, for instance, would pay up to $1,400 for an MRI of her back at the University Medical Center at Princeton, N.J., according to data that the insurer makes available to its members. The same scan would cost about a third as much at nearby Radiology Affiliates of New Jersey, a nonhospital facility. Based on a review of insurance databases and state regulatory records, that's a fairly typical price gap

Increasing Prices by Market Domination

Price increases also have the potential to bleed outward—affecting not only the patients of the absorbed doctor, but also the cost of health care citywide. That's because when hospitals sit down at the bargaining table with insurers, they're almost always able to negotiate higher payment rates for their big groups of doctors than a lone physician with little bargaining power

Despite the usual spin provided by the would-be monopolists:

Fast-growing hospital systems, including Hospital Sisters and Bozeman Deaconess, say that their growth will eventually make care more efficient and bring costs back down, since they'll be able to cut back on unnecessary care and duplicate tests

I am sure that the 19th century robber barons made the same pitch about increasing efficiency. Of course, the efficiency mainly benefits the insider managers.

By the way, of course, the hospital systems own public relations machines and lobbyists are now busy attacking any restrictions on such concentrations of power, while the hospital managers figure out how to game the system to increase their market domination before the regulators notice:

As more patients face such disruptions, regulators are taking notice. In October, the Federal Trade Commission and the Department of Health and Human Services met with doctors, insurers and other health officials to discuss the referral and pricing problems that could arise from 'accountable-care organizations'— those new groups of hospitals and doctors that will share financial incentives. The Federal Trade Commission will offer guidelines on what's permissible by midyear. But hospitals are already lobbying for accountable-care groups to be exempt from antitrust and antifraud rules, even as they scoop up more and more medical practices. Under current regulations, officials in Washington must green-light all mergers involving companies valued at more than $63 million. But by buying up tiny medical practices one at a time, critics say, hospitals stay below the threshold and avoid getting much attention. And by the time regulators settle on more-formal legal guidelines, those mergers may be hard to undo, says Cory Capps, a Washington economist specializing in health care antitrust issues.

Excess and Unnecessary Utilization via "Leakage Control"

With big hospital systems now owning physician practices, and practicing physicians directly answering to executives, the push will be on to maximize use of the most lucrative services. Once the hospital systems have made employees out of the physicians, it is easy to pressure their own employed physicians to refer patients to the hospital units that can bill most lucratively:

By their own admission, most hospitals are eager to keep patient referrals under the same corporate umbrella, to save on costs and share medical records but also to boost revenue. The hospitals say they wouldn't force an internist, for example, to refer a patient with heart problems to their own cardiologists, but critics say there's certainly financial pressure. Under a little-noticed regulation that took effect in 2007, hospitals are allowed to pay doctors less if they don't do enough internal referrals.

Doctors in Bozeman and Springfield who granted interviews said they didn't feel pressure to be 'team players' with referrals. But some of those who've left large health systems tell a different story, including Mark Callenberger, an orthopedist in Merritt Island, Fla. Callenberger says that the hospital group where he used to work urged him to direct more patients to the MRI machine owned by the hospital. The doctor preferred a more advanced machine at a private practice that he says offered clearer pictures. But after he ignored the recommendations, Callenberger says, the hospital told his office manager to schedule patients at the hospital's MRI anyway, leaving him to perform surgery using 'crummy images.' (The hospital declined to comment on Callenberger's case but says its doctors can use whatever facilities they choose.) Patients may never know about these power struggles, because doctors aren't required to disclose how they choose specialists. And while patients who ask can always see a specialist outside the network, in practice few are likely to challenge their doctors' judgment, says Bruce A. Johnson, a Denver health care lawyer. 'Face it, when we're really sick,' says Johnson, 'if the doctor tells us to jump off a roof, we'll probably consider doing it.'

Note that we discussed (here and here) the example of a for-profit hospital system with a large number of physician employees pushed to choke off "leakage" of patient referrals outside the system.

Summary

The overarching problem is that employed physicians now must answer to managers and executives who may put financial goals, and their own enrichment, ahead of physicians' values, and specifically will choose increased revenue over providing the best possible care to individual patients:

. Executives here are also hoping to push the needle further—standardizing everything from how long patients wait on hold to the ease of parking at the doctor's office (valets, luxury-restaurant style, are one solution under consideration).

Still, Mikell acknowledges, 'doctors don't want follow-the-directions, cookbook medicine.' And for many physicians, the idea of following new rules triggers a much larger unease at giving up their independence—a feeling of loss, both for the businesses they built and for their patients. Back in Bozeman, Blair Erb, the sole cardiologist in town, is a picture of resignation as he prepares to sign a contract with Deaconess. 'I feel defeated,' Erb says, looking around at the office furniture he and his wife, Liz, chose from a catalog years ago. The weathered ranchers and bundled-up women that come through his door mostly express disbelief when they hear that this frank-talking Tennessee native will sell his practice. His staffers say they're not looking forward to the questions the hospital's medical records system will soon prompt them to ask patients. (Do you wear a bike helmet regularly? Do you have a smoke detector?) 'We'll try to retain as much professional independence as possible,' Erb says, gazing at the hospital building, whose bulk he can see through his window. 'But the fact of the matter is, we'll have a new master.'

So I for one do not welcome our new executive overlords.

We have posted about numerous examples of health care organizational leaders who put their own enrichment ahead of the mission. Now even ostensibly non-profit hospital systems are increasingly competing against for-profit systems. We have seen, as noted above, an example of a for-profit system that seems to betting everything on a business strategy to reduce "leakage" of patient referrals.  We can expect that non-profit hospital systems will have to act more like for-profit systems, and the perverse financial incentives given the managers of all hospital systems will lead to pressure on physicians to forgo their responsibilities to provide the best care to individual patients in favor of actions that will bring in the most money in the shortest time.

We seem to be witnessing the rise of the corporate physician, the rise of a physician who must first answer to managers who never committed to putting patient care first, who may have no sympathy for physicians' core values, who may receive huge incentives to maximize short-term revenue no matter what. Such a rise of corporate physicians would be unprecedented in the US, and I believe in any developed country.

The rise of the corporate physician would require patients to put their trust in corporations, rather than individual doctors, in the era of the global financial collapse, in the new gilded age.

We may be seeing the end of health care world as we know it. The upcoming brave new world of health care may be worse that we can imagine.

What is to be done? - I rarely have ventured into specific policy suggestions, but I think that the consequences of the well-intended "accountable care organization" blunder may be so severe that I must so venture now. We must derail the movement towards "accountable care organizations." Any movement to make organizations more accountable cannot do so by making most professionals into employees answering to the sorts of ill-informed, incompetent, self-interested, conflicted or even corrupt leaders that we have been writing about for more than six years on Health Care Renewal.  We need to make it impossible for for-profit companies to employ physicians to take care of patients.  Maybe we need to think about making it impossible for for-profit companies to provide patient care at all, and for for-profit companies to sell health insurance.  Meanwhile, we need to ensure the accountability, integrity, transparency, and honesty of leaders of health care organizations.

If we do not reverse the current trends, anyone who wants good health care may have to look for it somewhere other than in the US.

More Hospitals Settle, But Not for Much

In late February, there have been several notable legal settlements made by more or less prominent hospitals, discussed in rough order of size.

United Regional Health Care System

Per the Cypress Times,

The Department of Justice announced today that it has reached a settlement with United Regional Health Care System of Wichita Falls, Texas, that prohibits it from entering into contracts that improperly inhibit commercial health insurers from contracting with United Regional’s competitors. The department said that United Regional unlawfully used these contracts to maintain its monopoly for hospital services in violation of Section 2 of the Sherman Act, causing consumers to pay higher prices for health care services.

Note that this appears to be the first settlement involving the Sherman Anti-Trust Act that included a hospital system, or any health care organization which we have discussed. As the Times article mentioned,

This is the first case brought by the department since 1999 that challenges a monopolist with engaging in traditional anticompetitive unilateral conduct.

Here is more detail about the alleged offenses:

According to the complaint, United Regional is by far the largest hospital in Wichita Falls. Its share of general acute-care inpatient hospital services is approximately 90 percent, and its share of outpatient surgical services is more than 65 percent. It is the region’s only provider of certain essential services such as cardiac surgery, obstetrics and high-level trauma care. In Wichita Falls, United Regional’s average per-day rate for inpatient hospital services sold to commercial health insurers is about 70 percent higher than its closest competitor for the services that are offered by both hospitals.

The department said that in order to maintain its monopoly in the provision of inpatient hospital and outpatient surgical services, United Regional systematically required most commercial health insurers to enter into contracts that effectively prohibited them from contracting with United Regional’s competitors. United Regional’s contracts required these insurers to pay significantly higher prices if they contracted with a nearby competing facility. Since United Regional is a must-have hospital for any insurer that wants to sell health insurance in the Wichita Falls area, and because the penalty for contracting with United Regional’s rivals was so significant, almost all insurers offering health insurance in Wichita Falls entered into exclusionary contracts with United Regional. As a result, competing hospitals and facilities could not obtain contracts with most insurers and were less able to compete, helping United Regional maintain its monopoly in the relevant markets and raising health-care costs to the detriment of consumers.

As far as I could tell, however, for this apparently severe offense there will be no actual penalty. The settlement only appears to provide for a promised change in future behavior by the hospital:

The proposed settlement, which if accepted by the court would be in effect for seven years, restores lost competition by prohibiting United Regional from using agreements with commercial health insurers that improperly inhibit insurers from contracting with United Regional’s competitors. In particular, United Regional is prohibited from conditioning the prices or discounts that it offers to commercial health insurers based on whether those insurers contract with other health-care providers and from inhibiting insurers from entering into agreements with United Regional’s rivals. United Regional is also prohibited from taking any retaliatory actions against an insurer that enters into an agreement with a rival provider.

So if a hospital engages in actions that restrain competition and results in a de facto monopoly, all the hospital leaders must fear is that at some point it may have to change its monopolistic behavior, according to this settlement.

Catholic Healthcare West

Per the San Jose Business Journal,

Catholic Healthcare West, parent company to local Mercy hospitals, has agreed to pay $9.1 million to settle allegations that seven of its hospitals submitted false Medicare claims, U.S. Attorney Benjamin Wagner announced late Friday.

Here is more detail about the alleged offenses:

The hospitals include Community Hospital of San Bernardino, St. Bernadine Medical Center in San Bernardino and St. Elizabeth Community Hospital in Red Bluff.

The settlement also included allegations that O’Conner Hospital in San Jose, Seton Medical Center in Daly City and St. Joseph’s Hospital and Medical Center in Phoenix submitted inflated costs for their home health agencies and were overpaid. The agreement also resolves allegations that St. Joseph’s overstated how much was owed in disproportionate share funding for indigent patients.

CHW no longer owns O’Conner Hospital or Seton Medical Center.

The settlement resolves allegations that St. John’s Regional Medical Center in Oxnard was overpaid for treating a high percentage of patients with end-stage kidney disease for several years, including two when it was not eligible.

Note that while the amount of the payment assessed appears substantial, it will be made a very long time after the alleged bad behavior occurred:

All of the problems occurred in the 1990s. Federal investigators began looking into the matter in 2001, but it took years to compile evidence and reach a settlement. All of the hospitals had set aside money in a reserve account should they have to pay funds back to the government.

So if a hospital submits false claims to the US government, hospital leaders need not fear paying anything back for more than 10 years, according to this settlement.

By the way, this was not the first such settlement that Catholic Healthcare West has had to make:

In 1998, a whistleblower at Woodland Healthcare disclosed instances of alleged fraud by two medical groups affiliated with local Mercy hospitals, Woodland Clinic Medical Group and Medical Clinic of Sacramento.

Following an extensive investigation, former U.S. Attorney John Vincent announced a $10.25 million settlement in May 2001. The allegations included false claims to inflate reimbursement from Medicare, Medi-Cal and military health insurance programs.

Massachusetts General Hospital (Partners Healthcare)

Per the Boston Globe,

Massachusetts General Hospital has agreed to pay the federal government $1 million to settle potential violations of patient privacy laws, which occurred when an employee commuting to work lost patient records on the T’s Red Line two years ago.

Here is more detail about the alleged offenses:

Health information for 192 patients in Mass General’s Infectious Disease Associates outpatient practice was lost in the incident, including that of patients with HIV/AIDS. The documents included a patient schedule containing names and patient medical record numbers, as well as billing forms containing the name, birth date, medical record number, health insurer and policy number, diagnosis, and name of providers for 66 of those patients.

Note that Massachusetts General Hospital is not independent, but part of Partners Healthcare, which reported net patient service revenue of $1.5 billion in the most recent quarter, again per the Boston Globe. So this settlement amounted to about 0.00167% of the system's patient revenue.

So if a hospital engages in actions that violate the trust patients have that their information will be kept confidential, all hospital leaders have to fear is that their institution will eventually have to pay something much less than round-up error of their revenue, according to this settlement.

Summary

Again, the volume of participants in the ongoing march of legal settlements is a reminder of how pervasive bad behavior is in the US health care system. Remember that these settlements are in some sense the tip of the iceberg. They only indicate behavior that inspired legal action which was in turn was publicized. It is likely that for each behavior that eventually leads to a settlement, there are many behaviors that go unreported, or that cause no reaction.

It is interesting that sorts of bad behavior that formerly caused no official reaction are now leading to settlements. As noted above, there had been no recent legal actions against concentration of power in health care up to the United Regional Health Care System settlement.

However, like many of the settlements we have previously noted, the latest crop seem to have little deterrent power. The United Regional Health Care System settlement seemingly involved no monetary penalties whatsoever, only a promise of not to do it again. The Catholic Healthcare West settlement's monetary penalties were so delayed, occurring over 10 years after the actions in question, their deterrent power is highly questionable. The Massachusetts General Hospital (really the Partners Healthcare) monetary penalty was infinitesimal compared to the size of the institution's budget.

Furthermore, as in nearly every other case we have reported, no person who authorized, directed or implemented the actions in question had to pay any penalty, or suffer any negative consequence, or was even identified.

So while there seems to be some increased interest in addressing some kinds of bad behavior, like monopolistic practices, that heretofore generated no official reactions, regulatory authorities still seem loathe to even slap the wrists of the people whose aggregated actions are making our health care so expensive, so inaccessible, and probably of such mediocre quality.

Thus, in recent years, health care leaders, like leaders of financial service companies, seem to have impunity,  Up to now, they have been able to preside over all sorts of bad behaviors that help support their exorbitant remuneration without fearing any personal penalties.  As Charles Ferguson, the director of Inside Job, said when accepting his Academy Award last night, per MarketWatch,

Forgive me, I must start by pointing out that three years after a horrific financial crisis caused by fraud, not a single financial executive has gone to jail — and that’s wrong

After a slow-motion health care train wreck over the last 30 years, hardly any health care executives have even had to pay a fine, much less go to jail.

So I repeat, and repeat, and repeat: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

More Hospitals Settle, But Not for Much

In late February, there have been several notable legal settlements made by more or less prominent hospitals, discussed in rough order of size.

United Regional Health Care System

Per the Cypress Times,

The Department of Justice announced today that it has reached a settlement with United Regional Health Care System of Wichita Falls, Texas, that prohibits it from entering into contracts that improperly inhibit commercial health insurers from contracting with United Regional’s competitors. The department said that United Regional unlawfully used these contracts to maintain its monopoly for hospital services in violation of Section 2 of the Sherman Act, causing consumers to pay higher prices for health care services.

Note that this appears to be the first settlement involving the Sherman Anti-Trust Act that included a hospital system, or any health care organization which we have discussed. As the Times article mentioned,

This is the first case brought by the department since 1999 that challenges a monopolist with engaging in traditional anticompetitive unilateral conduct.

Here is more detail about the alleged offenses:

According to the complaint, United Regional is by far the largest hospital in Wichita Falls. Its share of general acute-care inpatient hospital services is approximately 90 percent, and its share of outpatient surgical services is more than 65 percent. It is the region’s only provider of certain essential services such as cardiac surgery, obstetrics and high-level trauma care. In Wichita Falls, United Regional’s average per-day rate for inpatient hospital services sold to commercial health insurers is about 70 percent higher than its closest competitor for the services that are offered by both hospitals.

The department said that in order to maintain its monopoly in the provision of inpatient hospital and outpatient surgical services, United Regional systematically required most commercial health insurers to enter into contracts that effectively prohibited them from contracting with United Regional’s competitors. United Regional’s contracts required these insurers to pay significantly higher prices if they contracted with a nearby competing facility. Since United Regional is a must-have hospital for any insurer that wants to sell health insurance in the Wichita Falls area, and because the penalty for contracting with United Regional’s rivals was so significant, almost all insurers offering health insurance in Wichita Falls entered into exclusionary contracts with United Regional. As a result, competing hospitals and facilities could not obtain contracts with most insurers and were less able to compete, helping United Regional maintain its monopoly in the relevant markets and raising health-care costs to the detriment of consumers.

As far as I could tell, however, for this apparently severe offense there will be no actual penalty. The settlement only appears to provide for a promised change in future behavior by the hospital:

The proposed settlement, which if accepted by the court would be in effect for seven years, restores lost competition by prohibiting United Regional from using agreements with commercial health insurers that improperly inhibit insurers from contracting with United Regional’s competitors. In particular, United Regional is prohibited from conditioning the prices or discounts that it offers to commercial health insurers based on whether those insurers contract with other health-care providers and from inhibiting insurers from entering into agreements with United Regional’s rivals. United Regional is also prohibited from taking any retaliatory actions against an insurer that enters into an agreement with a rival provider.

So if a hospital engages in actions that restrain competition and results in a de facto monopoly, all the hospital leaders must fear is that at some point it may have to change its monopolistic behavior, according to this settlement.

Catholic Healthcare West

Per the San Jose Business Journal,

Catholic Healthcare West, parent company to local Mercy hospitals, has agreed to pay $9.1 million to settle allegations that seven of its hospitals submitted false Medicare claims, U.S. Attorney Benjamin Wagner announced late Friday.

Here is more detail about the alleged offenses:

The hospitals include Community Hospital of San Bernardino, St. Bernadine Medical Center in San Bernardino and St. Elizabeth Community Hospital in Red Bluff.

The settlement also included allegations that O’Conner Hospital in San Jose, Seton Medical Center in Daly City and St. Joseph’s Hospital and Medical Center in Phoenix submitted inflated costs for their home health agencies and were overpaid. The agreement also resolves allegations that St. Joseph’s overstated how much was owed in disproportionate share funding for indigent patients.

CHW no longer owns O’Conner Hospital or Seton Medical Center.

The settlement resolves allegations that St. John’s Regional Medical Center in Oxnard was overpaid for treating a high percentage of patients with end-stage kidney disease for several years, including two when it was not eligible.

Note that while the amount of the payment assessed appears substantial, it will be made a very long time after the alleged bad behavior occurred:

All of the problems occurred in the 1990s. Federal investigators began looking into the matter in 2001, but it took years to compile evidence and reach a settlement. All of the hospitals had set aside money in a reserve account should they have to pay funds back to the government.

So if a hospital submits false claims to the US government, hospital leaders need not fear paying anything back for more than 10 years, according to this settlement.

By the way, this was not the first such settlement that Catholic Healthcare West has had to make:

In 1998, a whistleblower at Woodland Healthcare disclosed instances of alleged fraud by two medical groups affiliated with local Mercy hospitals, Woodland Clinic Medical Group and Medical Clinic of Sacramento.

Following an extensive investigation, former U.S. Attorney John Vincent announced a $10.25 million settlement in May 2001. The allegations included false claims to inflate reimbursement from Medicare, Medi-Cal and military health insurance programs.

Massachusetts General Hospital (Partners Healthcare)

Per the Boston Globe,

Massachusetts General Hospital has agreed to pay the federal government $1 million to settle potential violations of patient privacy laws, which occurred when an employee commuting to work lost patient records on the T’s Red Line two years ago.

Here is more detail about the alleged offenses:

Health information for 192 patients in Mass General’s Infectious Disease Associates outpatient practice was lost in the incident, including that of patients with HIV/AIDS. The documents included a patient schedule containing names and patient medical record numbers, as well as billing forms containing the name, birth date, medical record number, health insurer and policy number, diagnosis, and name of providers for 66 of those patients.

Note that Massachusetts General Hospital is not independent, but part of Partners Healthcare, which reported net patient service revenue of $1.5 billion in the most recent quarter, again per the Boston Globe. So this settlement amounted to about 0.00167% of the system's patient revenue.

So if a hospital engages in actions that violate the trust patients have that their information will be kept confidential, all hospital leaders have to fear is that their institution will eventually have to pay something much less than round-up error of their revenue, according to this settlement.

Summary

Again, the volume of participants in the ongoing march of legal settlements is a reminder of how pervasive bad behavior is in the US health care system. Remember that these settlements are in some sense the tip of the iceberg. They only indicate behavior that inspired legal action which was in turn was publicized. It is likely that for each behavior that eventually leads to a settlement, there are many behaviors that go unreported, or that cause no reaction.

It is interesting that sorts of bad behavior that formerly caused no official reaction are now leading to settlements. As noted above, there had been no recent legal actions against concentration of power in health care up to the United Regional Health Care System settlement.

However, like many of the settlements we have previously noted, the latest crop seem to have little deterrent power. The United Regional Health Care System settlement seemingly involved no monetary penalties whatsoever, only a promise of not to do it again. The Catholic Healthcare West settlement's monetary penalties were so delayed, occurring over 10 years after the actions in question, their deterrent power is highly questionable. The Massachusetts General Hospital (really the Partners Healthcare) monetary penalty was infinitesimal compared to the size of the institution's budget.

Furthermore, as in nearly every other case we have reported, no person who authorized, directed or implemented the actions in question had to pay any penalty, or suffer any negative consequence, or was even identified.

So while there seems to be some increased interest in addressing some kinds of bad behavior, like monopolistic practices, that heretofore generated no official reactions, regulatory authorities still seem loathe to even slap the wrists of the people whose aggregated actions are making our health care so expensive, so inaccessible, and probably of such mediocre quality.

Thus, in recent years, health care leaders, like leaders of financial service companies, seem to have impunity,  Up to now, they have been able to preside over all sorts of bad behaviors that help support their exorbitant remuneration without fearing any personal penalties.  As Charles Ferguson, the director of Inside Job, said when accepting his Academy Award last night, per MarketWatch,

Forgive me, I must start by pointing out that three years after a horrific financial crisis caused by fraud, not a single financial executive has gone to jail — and that’s wrong

After a slow-motion health care train wreck over the last 30 years, hardly any health care executives have even had to pay a fine, much less go to jail.

So I repeat, and repeat, and repeat: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

More on Hospital Market Dominance, Enabled by Secret Pricing

This week two more articles appeared describing how large hospital systems use market dominance to charge more.  Naturally, both were in news publications, not scholarly health services research journals.

San Francisco

Kaiser Health News (via the Contra Costa [CA] Times) discussed hospital market dominance in the San Francisco area.  The article documented how particular systems can command higher prices. Consider the example of John Muir Health vs San Ramon Medical Center:

Often, a hospital's dominance in an area helps determine how much it can charge, experts say. Consider John Muir Health, a two-hospital nonprofit system in the East Bay. With campuses in Concord and Walnut Creek, John Muir has the biggest footprint in the local hospital market, accounting for 54 percent of all the acute care inpatient stays in 2009, more than any other hospital group, according to state data.

The hospital with the weakest market penetration is San Ramon Medical Center, a Tenet-owned, for-profit hospital, with 10 percent of the acute care inpatients.

The least the insurer Aetna paid John Muir for an outpatient colonoscopy was $3,185, according to Aetna's website, which tracks two years of payments. Aetna paid $1,483 to San Ramon Regional Medical Center for the same service. The least Aetna paid John Muir for an uncomplicated birth was $7,722, while its lowest price for a birth at San Ramon was $5,278.

Yet on broad quality measures, John Muir's hospitals generally score no better than San Ramon's, according to the California Hospitals and Reporting Taskforce, a nonprofit that produces hospital report cards published at Calhospitalcompare.org.

San Ramon ranks equal to John Muir's Walnut Creek campus in most major measures, including mortality rates in the intensive care units, overall patient satisfaction and maternity care. John Muir's Concord campus ranks below San Ramon on several measures, including mortality rate and patient experience, though John Muir was rated better in avoiding complications for patients on ventilators.

Then there is Sutter Health:

[Stanford University associate vice president for Benefits Les] Schlaegel says so many employees like to see doctors at the Palo Alto Medical Foundation, a doctors' organization affiliated with Sutter with a clinic near the Stanford campus, that the university feels obliged to keep offering insurance networks that include Sutter.

'Sutter basically has a stranglehold on Northern California,' says Schlaegel. 'They are strategically situated, both for hospitals and medical groups. They know purchasers need them. When you are strategically located, you can say 'this is our price and you can pay it.''

Secret Pricing
The ability of dominant hospitals to charge higher prices is facilitated by secrecy in which hospital pricing is cloaked

The hospitals haven't made it easy for consumers to comparison shop. State law requires hospitals to reveal their charges for specific services. But those charges don't reflect the lower negotiated rates insurers actually pay - rates hospitals usually insist be kept secret. The California Hospital Association has opposed legislation to ban such 'gag clauses'; the most recent of these bills died in the state Assembly in August.

Hospitals have also resisted a four-year campaign by the Pacific Business Group on Health, an employer coalition, and CalPERS to create a 'hospital value initiative' that would allow hospital comparison based on cost and quality of care.

Summary

In many cases, hospitals are able to keep raising prices beyond inflation because their sizes or reputations give them clout in negotiating rates with insurers, researchers say. Yet high prices don't always equate with superior care.

Quality measures for some of the Bay Area's most prestigious hospitals, including Stanford and John Muir, show that in some instances, less expensive competitors perform as well or better in their basic responsibilities, such as avoiding infections and high death rates for patients in intensive care.

'Some hospitals are able to charge higher prices than the market normally would bear, even without providing higher quality,' says Dr. R. Adams Dudley, a professor of medicine and health policy at the University of California, San Francisco. 'That means they're getting those higher prices without really offering more to patients or the rest of society.'

New York City


Meanwhile, a long feature story in New York magazine about the demise of St Vincent's hospital (see our post here) also discussed the market power of its competitors as one factor in its decline:

The city’s largest and most powerful hospitals, which are crucial to an insurer’s customers, exert their leverage to secure deals that are believed to pay well above the average margin; smaller hospitals, which are often located in low-income neighborhoods, have little choice but to accept the dismal rates dictated by insurers if they want to remain in the insurers’ plans. 'When the big players take their cut, there are only scraps left for everyone else,' says the CEO of an outer-borough hospital. “'United HealthCare couldn’t care less about having my hospital in their network. They tell me to take it or leave it.

Secret Prices

Like in California, market dominance is enabled by secret pricing:

the rates negotiated between hospitals and insurance providers are withheld from public scrutiny—even state health and insurance regulators are denied the information

Free Markets?

Secret prices determined by market power hardly sound like characteristics of a free market. Yet in New York, at least, they seem partially to be the result of the free market ideology of previous political leaders:

Then George Pataki took office in 1995, determined to allow hospitals to test their mettle in the free market by negotiating their own terms with insurers. It turned out to be an exercise in shock-therapy capitalism. Inexperienced at the bargaining table, hospitals engaged in intramural rivalry with each other, cutting unfavorable deals with insurers in order to hold on to patients in the short term. With their already thin margins pared down further by deregulation, many hospitals soon built up paralyzing debt loads. Even the largest and seemingly least vulnerable facilities decided that their best hope for survival was to get bigger. A flurry of mergers and buyouts ensued, and by the end of the nineties, the hospital system began to assume its current bewildering patchwork of partnerships and affiliations. Columbia Presbyterian and New York Hospital, both attached to elite medical schools, joined forces. NYU and Mount Sinai forged a deal (it later came undone). On the eastern edge of the city, North Shore hospitals merged with nearby Long Island Jewish, staking out an enormous swath of the hospital market on Long Island, Queens, and Staten Island. Beth Israel and St. Luke’s–Roosevelt, debt-ridden and left on the sidelines by the major academic hospitals, decided to try making a go of it together. It was unclear if bigger was actually better—for patients or the bottom line—but size seemed to offer hospitals a buffer against collapse.

By 2005, less than a decade into its dalliance with free enterprise, the city’s hospital system had taken on something of a post-Soviet tinge, with winners ruling the roost like oligarchs and losers reduced to a state of grim dependency. A pecking order emerged, with elite academic centers at the top, well-regarded independent hospitals like Lenox Hill in the middle, and community hospitals on the bottom.

Summary

We have previously written (for example, here and here) about how increasing market dominance by large, sometimes strategically located, and sometimes politically well-connected (e.g., see here) hospital systems run by conflicted leaders. This seems like another unintended consequence of the "free markets solve all problems" ideology, possibly fueled by conflicts of interest that has done so badly in our financial arena (see here). What some of these free market enthusiasts seem to forget, their forgetfulness perhaps fueled by payments received from the large corporations that have profited from this movement, are that true free markets are hard to maintain. This is particularly so in health care, in which knowledge is asymetric, outcomes are uncertain, and sick and anxious patients have trouble making cool, rational choices (as per Arrow, see this post.)

But if the free market enthusiasts really believe in free markets, why have they not been out campaigning to prevent the "unfree" characteristics, like secret pricing, of current health care markets?  Of course, ending secret pricing might compromise the ability of their financial sponsors to keep earning their millions

More on Hospital Market Dominance, Enabled by Secret Pricing

This week two more articles appeared describing how large hospital systems use market dominance to charge more.  Naturally, both were in news publications, not scholarly health services research journals.

San Francisco

Kaiser Health News (via the Contra Costa [CA] Times) discussed hospital market dominance in the San Francisco area.  The article documented how particular systems can command higher prices. Consider the example of John Muir Health vs San Ramon Medical Center:

Often, a hospital's dominance in an area helps determine how much it can charge, experts say. Consider John Muir Health, a two-hospital nonprofit system in the East Bay. With campuses in Concord and Walnut Creek, John Muir has the biggest footprint in the local hospital market, accounting for 54 percent of all the acute care inpatient stays in 2009, more than any other hospital group, according to state data.

The hospital with the weakest market penetration is San Ramon Medical Center, a Tenet-owned, for-profit hospital, with 10 percent of the acute care inpatients.

The least the insurer Aetna paid John Muir for an outpatient colonoscopy was $3,185, according to Aetna's website, which tracks two years of payments. Aetna paid $1,483 to San Ramon Regional Medical Center for the same service. The least Aetna paid John Muir for an uncomplicated birth was $7,722, while its lowest price for a birth at San Ramon was $5,278.

Yet on broad quality measures, John Muir's hospitals generally score no better than San Ramon's, according to the California Hospitals and Reporting Taskforce, a nonprofit that produces hospital report cards published at Calhospitalcompare.org.

San Ramon ranks equal to John Muir's Walnut Creek campus in most major measures, including mortality rates in the intensive care units, overall patient satisfaction and maternity care. John Muir's Concord campus ranks below San Ramon on several measures, including mortality rate and patient experience, though John Muir was rated better in avoiding complications for patients on ventilators.

Then there is Sutter Health:

[Stanford University associate vice president for Benefits Les] Schlaegel says so many employees like to see doctors at the Palo Alto Medical Foundation, a doctors' organization affiliated with Sutter with a clinic near the Stanford campus, that the university feels obliged to keep offering insurance networks that include Sutter.

'Sutter basically has a stranglehold on Northern California,' says Schlaegel. 'They are strategically situated, both for hospitals and medical groups. They know purchasers need them. When you are strategically located, you can say 'this is our price and you can pay it.''

Secret Pricing
The ability of dominant hospitals to charge higher prices is facilitated by secrecy in which hospital pricing is cloaked

The hospitals haven't made it easy for consumers to comparison shop. State law requires hospitals to reveal their charges for specific services. But those charges don't reflect the lower negotiated rates insurers actually pay - rates hospitals usually insist be kept secret. The California Hospital Association has opposed legislation to ban such 'gag clauses'; the most recent of these bills died in the state Assembly in August.

Hospitals have also resisted a four-year campaign by the Pacific Business Group on Health, an employer coalition, and CalPERS to create a 'hospital value initiative' that would allow hospital comparison based on cost and quality of care.

Summary

In many cases, hospitals are able to keep raising prices beyond inflation because their sizes or reputations give them clout in negotiating rates with insurers, researchers say. Yet high prices don't always equate with superior care.

Quality measures for some of the Bay Area's most prestigious hospitals, including Stanford and John Muir, show that in some instances, less expensive competitors perform as well or better in their basic responsibilities, such as avoiding infections and high death rates for patients in intensive care.

'Some hospitals are able to charge higher prices than the market normally would bear, even without providing higher quality,' says Dr. R. Adams Dudley, a professor of medicine and health policy at the University of California, San Francisco. 'That means they're getting those higher prices without really offering more to patients or the rest of society.'

New York City


Meanwhile, a long feature story in New York magazine about the demise of St Vincent's hospital (see our post here) also discussed the market power of its competitors as one factor in its decline:

The city’s largest and most powerful hospitals, which are crucial to an insurer’s customers, exert their leverage to secure deals that are believed to pay well above the average margin; smaller hospitals, which are often located in low-income neighborhoods, have little choice but to accept the dismal rates dictated by insurers if they want to remain in the insurers’ plans. 'When the big players take their cut, there are only scraps left for everyone else,' says the CEO of an outer-borough hospital. “'United HealthCare couldn’t care less about having my hospital in their network. They tell me to take it or leave it.

Secret Prices

Like in California, market dominance is enabled by secret pricing:

the rates negotiated between hospitals and insurance providers are withheld from public scrutiny—even state health and insurance regulators are denied the information

Free Markets?

Secret prices determined by market power hardly sound like characteristics of a free market. Yet in New York, at least, they seem partially to be the result of the free market ideology of previous political leaders:

Then George Pataki took office in 1995, determined to allow hospitals to test their mettle in the free market by negotiating their own terms with insurers. It turned out to be an exercise in shock-therapy capitalism. Inexperienced at the bargaining table, hospitals engaged in intramural rivalry with each other, cutting unfavorable deals with insurers in order to hold on to patients in the short term. With their already thin margins pared down further by deregulation, many hospitals soon built up paralyzing debt loads. Even the largest and seemingly least vulnerable facilities decided that their best hope for survival was to get bigger. A flurry of mergers and buyouts ensued, and by the end of the nineties, the hospital system began to assume its current bewildering patchwork of partnerships and affiliations. Columbia Presbyterian and New York Hospital, both attached to elite medical schools, joined forces. NYU and Mount Sinai forged a deal (it later came undone). On the eastern edge of the city, North Shore hospitals merged with nearby Long Island Jewish, staking out an enormous swath of the hospital market on Long Island, Queens, and Staten Island. Beth Israel and St. Luke’s–Roosevelt, debt-ridden and left on the sidelines by the major academic hospitals, decided to try making a go of it together. It was unclear if bigger was actually better—for patients or the bottom line—but size seemed to offer hospitals a buffer against collapse.

By 2005, less than a decade into its dalliance with free enterprise, the city’s hospital system had taken on something of a post-Soviet tinge, with winners ruling the roost like oligarchs and losers reduced to a state of grim dependency. A pecking order emerged, with elite academic centers at the top, well-regarded independent hospitals like Lenox Hill in the middle, and community hospitals on the bottom.

Summary

We have previously written (for example, here and here) about how increasing market dominance by large, sometimes strategically located, and sometimes politically well-connected (e.g., see here) hospital systems run by conflicted leaders. This seems like another unintended consequence of the "free markets solve all problems" ideology, possibly fueled by conflicts of interest that has done so badly in our financial arena (see here). What some of these free market enthusiasts seem to forget, their forgetfulness perhaps fueled by payments received from the large corporations that have profited from this movement, are that true free markets are hard to maintain. This is particularly so in health care, in which knowledge is asymetric, outcomes are uncertain, and sick and anxious patients have trouble making cool, rational choices (as per Arrow, see this post.)

But if the free market enthusiasts really believe in free markets, why have they not been out campaigning to prevent the "unfree" characteristics, like secret pricing, of current health care markets?  Of course, ending secret pricing might compromise the ability of their financial sponsors to keep earning their millions

More Examples of US Hospital Market Consolidation: Connecticut and Florida

Two recent stories from two different parts of the US continue the theme of ever increasing concentration of power in our health care system.

Connecticut

The Hartford Business Journal reported on growing interest in mergers among small Connecticut hospitals.

Rising costs and reductions in government reimbursements related to health care reform could lead to consolidation among the state’s 29 acute care hospitals in the coming months and years, industry experts said.

Indeed signs of consolidation in Connecticut are already taking shape. Danbury and New Milford hospitals, for example, recently signed an affiliation agreement that will put both organizations under the control of a single corporate parent.

Meanwhile, the Central Connecticut Health Alliance, which is the parent company of the Hospital of Central Connecticut, has signed a memorandum of understanding to affiliate with Hartford Healthcare. If that deal gets federal regulatory approval, the two organizations would be integrated under the Hartford Healthcare umbrella.

Note that this story suggests the rationale has everything to do with financial issues, and little to do with patient care issues.

In some cases, deals could be fueled by the needs of cash-strapped, independent hospitals to find larger, more stable partners. In other cases, independent hospitals that have remained financially stable may look to form partnerships to gain greater access to capital markets.

'There are a lot of hospitals that are struggling financially and I think the changes that health care reform is going to bring with reimbursements could be the straw that breaks the camel’s back,' said Vincent Capece, the senior vice president and chief operating officer of Middletown-based Middlesex Hospital, which has nearly 300 beds. 'It will force hospitals to either go out of business, or find a partner.'

Mergers or partnerships allow smaller, independent hospitals to leverage the purchasing power of larger institutions — especially with insurance companies — and consolidate backroom or administrative services, among other benefits.

Note also that the recent US attempt at health care reform, later characterized as health insurance reform, is seen as driving, not preventing mergers.

Hospital officials say talks of mergers, or other types of partnerships, are likely to continue as the economy remains on shaky ground and health reform changes the landscape of how the industry does business.

Officials say reform will lead to reduced Medicare reimbursements from the federal government and require significant capital investments as hospitals prepare for larger patient loads and acquire new technology to provide more efficient care.

Florida

The Orlando Sentinel reported on increasing merger hospital merger activity in central Florida.

In health-care circles, the summer of 2010 may be remembered as the end of small, independent hospitals in Central Florida. Three community facilities here have set their course toward consolidation by joining — or announcing plans to join — large systems.

This month, Health Central, the last independent hospital in Orange County, voiced its intention to partner with a hospital chain. In July, the Wuesthoff hospital system in Brevard County was purchased by a for-profit corporation in Naples that owns 60 hospitals across the country. And on July 1, a partnership between Bert Fish Medical Center and Florida Hospital took effect, giving the system the option to buy the New Smyrna Beach facility.

The latter case could apparently lead to quite a substantial local concentration of power:

In Orlando, two major hospital chains dominate: Orlando Health, which owns all or part of eight hospitals, and Florida Hospital, which owns or operates 13 hospitals in Central Florida and 18 throughout the state.

Both are likely suitors for Health Central, which operates a 171-bed hospital, a nursing home and other health-care services in west Orange County.

Officials from Orlando Health did not respond to requests for interviews.

Florida Hospital system already is involved in a partnership with Bert Fish Medical Center that could lead to a purchase of the facility in 2015. As part of the agreement, Florida Hospital, which is owned by Winter Park-based Adventist Health System, would provide $24 million in capital improvements for Bert Fish in the next five years, pay off the hospital's debt and prop up an underfunded pension plan. In addition, residents in the hospital's taxing district were told their tax rates would go down.

The partnership cements Florida Hospital's dominance in Volusia and Flagler counties, where it already owns hospitals in DeLand, Orange City, Daytona Beach, Ormond Beach and Palm Coast. Its sole remaining competitor is Halifax Health, which owns hospitals in Daytona Beach and Port Orange.

This story contained some protestations from hospital leaders that it is all about the patients:

Florida Hospital officials say their goal is not to create health-care monopolies.

'We're a church-sponsored, church-related organization,' said Florida Hospital Vice President Richard Morrison. 'It's our mission to serve people — and if we can come to other communities and bring what we think is a distinctive approach to health care, then we'll do that.'

On the other hand,

'Hospitals today are like mom-and-pop grocery stores were 40 years ago,' said Dr. Kevin Schulman of Duke University's Fuqua School of Business. Before there was a Publix in every neighborhood, there were small grocery stores. Today, like the grocers, hospitals are joining forces or selling out to regional chains.

For the hospitals, there's strength in numbers, Schulman said. A large hospital system has more leverage when negotiating with insurance companies. Likewise, there's power in purchasing.

But these widespread hospital mergers 'have led to more market power for hospitals. Another word for that is 'monopoly,'' Schulman said.

Furthermore, just as history tells us, monopoly may be good for monopolists but not for everyone else.

A single small hospital doesn't have much clout to bargain with insurance companies. On the other hand, a hospital system that dominates a market is more likely to be able to charge higher rates to insurers — and their customers, say experts.

'There may be some efficiencies in being larger,' said Dr. Robert Berenson, a health-policy expert at the Urban Institute, a think tank in Washington. 'More to the point, however, it gives a hospital much more leverage in negotiating with health plans.'

And although there are many forces driving hospitals to join larger systems, Berenson says the results have been clear to health-care economists.

'There's some theory that [consolidation] improves quality,' he said, 'but the reality is, it drives up prices.'

While at least the folk wisdom among doctors is that the federal authorities will jump on any two doctors who informally discuss their prices, in the laissez faire, let the good times roll era of the 1980s through 2000s, there seemed to be little governmental concern about hospital (or health care in general) consolidation of power:

'Because many hospitals are not-for-profit entities, we seem to have given them a lot more latitude from an antitrust perspective, [Dr Kevin] Schulman said. 'Yet they act like the worst of the for-profit monopolies.'

Summary

As we just noted, advocates of laissez faire commercialized health care often trumpet the advantages of competitive markets as a rationale for deregulation. While there are theoretic, and possibly empiric reasons to think that competitive markets are the optimal way to distribute goods and services, we recently discussed aspects of health care that make it extremely hard for health care markets to be ideally competitive.

In the 1960s, it became recognized that physicians' professionalism, hospitals' devotion to their missions, and sometimes even (gasp) government regulation might partially compensate for distortions in the health care market. However, as supposed free market advocates became more powerful, they pushed for the commercialization of medicine and hospitals, reducing professionalism and mission support, and the hollowing out government regulation. (However, why did the people who attacked medical societies' codes of ethics as monopolistic have no interest in attacking market domination by insurers or hospital systems? Inquiring minds want to know.)

As we said last time, true health care reform would help physicians and other health care professionals uphold their traditional values, including, as the AMA once stated, "the practice of medicine should not be commercialized, nor treated as a commodity in trade." True health care reform would put health care "delivery" back in the hands of mission-focused, not-for-profit organizations, which put patients' health, safety and welfare first.