• The delivery system is changing

    I made the point to somebody-or-other recently that the health care delivery system is already undergoing big change. My point was that it may be premature to layer even more of the same on top of what’s already in the works. It might even be necessary to slow things down, maybe.

    Today, long-time reader Steve S emailed me:

    I have no idea what your exposure is to retail medicine, I just thought I would pass along info that I suspect you know anyway, but may not be aware of the urgency with which people in private practice are approaching the issue. Consolidations and mergers, getting bigger, seems to be a topic broached at almost every major meeting. Our network has brought in consultants who are telling us that networks/hospitals with less that $3 billion-$5 billion in revenue will be unable to survive. Hospital administrators are also obsessing over the cutbacks they are already facing from the ACA, or perceived changes that are coming. I will have to say that this is the first time 40 years in medicine that I think I see people really serious about cutting costs. I am still not sure if this is all due to the ACA or just concerns about the ACA, but its passage and coming full implementation has stirred things up.

    Is this just what consultants are saying to drum up business, or are we really seeing unusually large shifts in the health system? From my perch, I can’t tell. But some of you work closer to the sharp end. What’s your take?

    @afrakt, via phone

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    • Can you or any readers validate or expand on the comment:”hospitals with less that $3 billion-$5 billion in revenue will be unable to survive.”
      It would also be interesting to know who these consultants are? For example are these GPO/IDN group extensions like Novation or MedAssets? Essentially are these internal or external consulting groups?This is certainly an area that has been growing over the past few years.
      As it relates to the 3-5 billion comment, what are some of the factors that might contribute to this? Penalties for readmissions(not to mention these categories will be expanding over time) and potential decreases in reimbursement?
      Any additional insight would be appreciated and I recognize this is a fluid and moving object therefore even speculation is welcome.
      John

    • Consultant here (with both payor and provider clients)–

      My clients seem obsessed with consolidation and using the leverage to get better rates.

      The net effect here on costs for the whole system is likely negligible as my clients plan (and have) getting better rates to compensate for cuts through their increased size (through mergers), lower competition (through elimination of physician-owned alternatives) and only marginally by lowering their actual costs. For most providers, the low-hanging fruit of operational efficiencies such procurement is long gone (especially with savvier med device companies now) with the only other plausible source of significant savings being through staff redundancy or pay cuts. This difficult for both legal/regulatory (e.g., nursing ratios, need for either outsourced or inhouse billing & medicare experts) and customer facing reasons (e.g., need for a comprehensive specialty offering) so their only real option is to get bigger (conveniently the ACA encourages that).

      Some of my clients have experimented with the ACO model in the hopes of actually achieving savings and efficiency on a larger scale by doing a population health approach but unfortunately, these have not been shown to work when accounting for fixed costs and the fact that our population health is notoriously dependent on demographics. Potentially, this approach could work eventually if someone does it better than my clients have but till then, would bet money that provider prices are heading higher.

      Also, one final note: Providers’ real sustainable competitive advantage comes from their barriers to entry. Most experts tend to focus on physicians as a chokepoint here (e.g., using midlevel instead to save, etc) but hospitals are a much bigger contributor to costs.

      The main driver is that insurers rarely give preferential rates to physician groups (they rarely have scale to get them) but with barriers such as certificates of need, etc., hospitals now increasingly do…

    • That is exactly what is happening in my area. Expansion and collaboration of hospital based practices. My hospital group is aiming to reduce cost by 1.5 billion. It is impossible for stand alone primary care practices to survive. We are encouraged to refer to subspecialist in order to increase revenues which subsidize primary care. Having been in practice 30 + years this is something I never envisioned happening. Is it good for medicine I don’t know but it is where we are. Im my view the only solution is single payer system. As long as health care is a for profit system with so many vested interests it will continue to be driven by these interests.

    • The basis for considering reform of the healthcare industry is already known. Professor Elinor Ostrom, 2009 Nobel Prize in economics, produced a life time studying how a group of people, who use a common resource, collaborate to to use the resource efficiently. The best example in the United States is the preservation of the water aquifir under Los Angeles in California. Before she died this year, her writing writing includes more than 10 books beginning with “Governing the Commons” in 1991. In current times for the USA, the most efficient industry is agriculture, in terms of reources applied and food produced. The next most efficient nation is Argentina still only 50% as efficient as our own industry. Many other sources of information already exist to “fix-it.”

      Justly accessible healthcare will be required for healthcare reform since the inequities are profound, given our nation’s maternal mortality rate (MMR). We would need to reduce our nation’s maternal mortality rate by 75% to rank among the top 10 countries of the world. If you think this is impossible, why is it that Maine, Vermont, Indiana and Alaska already have an MMR that is 3.4 or less (National average 13.1).

      Its time to use what is truly known. Unfortunately, the economic mandate for healthcare has paralyzed our pursuit of the social mandate. Congress must establish a new, semi-autonomous institution with decentralized governance to establish a tradition of tranparency, trust and collaboration for the reform of our nation’s healthcare industry. Our nation’s autonomy in the world-wide arena of resources, knowledge and human dignity is at stake.

      Wringing our hands over the current state of paradigm paralysis is understandable, but now is the time to promote real change based on real evidence. The best book for this is Professor Ostrom’s book, “Institutional Diversity” published in 2005. I have just begun to read her collection of essays by others covering “Social Capitol.”

      In the mean time, I continue with 2 other physisians to offer Primary Health Care for 2600 folks, many with relationships of 30 years or more. So far, a commitment to an adaptable work atmosphere “rains” supreme based on 4 R.N.s who manage the front line access process and a Business manager who manages the accounts receivable aging at 27 days. We still see our own patients in the hospital. After 37 years, I still look forward to each day.

      The current paralysis within the Beltway could be an oppurtunity to begin a reduction in the cost of healthcare for our nation: reduce the Gross Domestic Product devoted to healthcare by 25%. The most important contributer to the deficit would eventually disappear. A “Mission to the Moon” project will be necessary. Congress must act soon!