This paper has been brewing in me for some time. I can't say it's finished, but it is up to a place where I would like to show it to you all and invite your comments. While it is clearly written from my perspective as a primary care practitioner and as a member of the Section on Administration and Practice Management of the American Academy of Pediatrics, nonetheless, I believe it is widely enough based to have practical applicability.
Warning: 3,500 words (in other words, not publishable in its present form in a journal, alas.)
Warning: 3,500 words (in other words, not publishable in its present form in a journal, alas.)
The Emerging
Organizational Structure of Health Care
May 2017 draft
It is a
recognized principle that structure and function must go together.
Thus, the organizational structure (OS) of our health care delivery
system strongly conditions the cost, quality, and experience of care
produced by that system. So it is somewhat remarkable that, even as
the OS of our system changes profoundly right in front of us, and
even as the financing of that system is discussed perhaps more than
any other domestic issue, there is little systematic and critical
discussion of OS.
This
absence needs to be rectified. Not that an ideal OS needs to be
identified – indeed, I will argue that there is no such ideal OS.
But unless an overt and conscious policy is developed that will
encourage an evolution of OS that serves the public well, the
evolution will fall prey to ungoverned political and economic forces
that will not necessarily respond to the needs of the public. This
paper intends to help uncover the conditions that the policy needs to
address.
How
OS Is Changing
The
universal theme of OS change is agglomeration and centralization, and
some would say, corporatization. Horizontal Integration (HI) is
ubiquitous. “Sixty
percent of hospitals are now part of health systems.”i
Independent physician offices have become larger
single-specialty groups and community clinics. Health insurance
companies are fewer, larger, mostly for-profit, and richer.
Vertical
integration (VI) has occurred as well. Multi-specialty groups have
grown and multiplied, often tied to hospitals. Hospitals currently
employ over half of the physician force, and have absorbed aftercare
units.ii
The completely integrated system (IS) of Kaiser Permanente,
continues to dominate California's market and is increasingly
emulated elsewhere. Accountable Care Organizations (ACO's) can be
viewed as the most recent iteration of VI. Large hospital centers
are increasingly partnering with insurance companies or trying to
bring the financing arm in-house. Insurance companies are buying
practices and investing in clinical services such as nurse advice and
telehealth. Ownership of the means of production (which means
clinicians and their facilities) has shifted from professional
dominance to corporate control.
Agglomeration
is clearly a fact. But, is this fact a good thing?
Evaluating
Agglomeration
The Pluses of
Agglomeration
Mid-20th
century liberals derided the traditional decentralized system as a
“cottage industry” model, and proposed a more modern industrial
model of VI financed by capitation for “prepaid care.” The
business-oriented Nixon Administration agreed, renaming “prepaid
care” as Health Maintenance Organizations. Alan Enthoven suggested
that “the provider community must be divided into competing
economic units” with his concept of “managed competition.”iii
Today, the argument for larger integrated entities has become
orthodoxy.
The
agglomeration argument asserts that larger organizations can
internalize operations and thus decrease open market transaction
costs and rationalize the disparate functions of health care
delivery; that if costs are centralized, then priorities will shift
to prevention and efficiency; and that larger scale will deliver
economies of scale and decrease risk. Rationalization will come from
leadership's having more information and control, from recruiting and
training physician leadership, from specialized professionals leading
corporate functions such as personnel, finance, and information
technology, and from allowing most physicians to devote themselves
only to the practice of medicine. Larger firms can better adjust to
new payment schemes by payers. Innovation will be fostered by larger
accumulations of capital, and lower risk of the consequences of
failure. Larger firms can integrate lesser-trained professionals
more easily into productive clinical roles.
In
addition, larger size confers benefits in relations with the world
outside the firm. Insurance companies will pay higher rates to
larger firms. Larger firms have more power in governmental
negotiations. Large firms can afford to advertise, and can recruit
high quality personnel more easily.
The
minuses of agglomeration
The
minuses of agglomeration, however, are just as compelling. “In
companies with lots of divisions and product lines, it’s hard for
executives to concentrate on the core business.”iv
In academic centers the research agenda may trump clinical service,
and within VI entities highly profitable specialties can trump the
attention paid to primary care. Moreover, large organizations can
cushion the competitiveness of individual units – a specialty unit
with built-in referrals from the network needs only to be “good
enough” rather than outstanding.
Bureaucracies
experience careerism, turf battles, and information withholding.
Creativity can be stifled; promotion of clinicians can depend on
deference to administrative leaders.v
Administrative overhead can expand needlessly; profit-driven and
power-driven leadership can drive out the medical ethic. Clinicians
in large groups can seek approbation from colleagues rather than
patients.vi
As losing a patient has smaller economic consequences, patient
service can become a bureaucratic afterthought.
Lammenais
observed that, “Centralization breeds apoplexy at the center and
anemia at the extremities.” A more recent observer warns that the
ills of VI are so pervasive that that VI should be avoided if
possible because of the inherent difficulties of managing a
vertically integrated firm, and that the motivation for VI is more
often a search for market power rather than improved performance and
efficiency.vii
The
pluses of decentralization
The
conservative American Medical Association was the earliest defender
of
the decentralized status
quo, citing
a better
doctor-patient relationship, and emphasizing the positives of
professional dominance.viii
In 1971 a brilliant article by physician
Michael Halberstam encapsulated the anti-corporate position of the
Left, in surprising support of the AMA position, placing priority on
authentic person to person relationships supplied by smaller
organizations.ix
Today, a contemporary
business theory supports decentralization in the form of the Centers
of Excellence (COE) model.x
COE
envisions competition among smaller independent units of care
connected by information and communication technology rather than by
VI's ownership and overt direction. In this model, for instance, a
primary care Patient Centered Medical Home (PCMH) would unite the
patient and primary care provider in choosing referrals among
competing centers with varying combinations of cost and quality, be
they large or small specialist practices, general or specialty
hospitals or procedure centers, etc., rather then being tied into a
mandatory network. In theory, the PCMH alliance of PCP and patient
makes free market competition practical by circumventing the problem
of low patient knowledge, and activates the medical-fiduciary role of
the clinician in choosing referrals freely rather than from a
constrained list.
Decentralized
units reduce bureaucracy and administrative overhead, and modern
information and communication technology make it possible for smaller
units to be exquisitely efficient. Unlike in an IS, lower performing
units are not coddled, and competition for patients drives high
performance and innovation. Smaller units tend to be more personal
for both employees and patients, so important in the caring function,
and so helpful in easing communications within the organization and
from the organization to patients.
Owners
are incentivized both financially, by professional pride, and by the
caring connection to the patient. The more direct financial and
personal connection to the patient may provide increased incentives
for patient-centered care. Smaller units can be more flexible than
larger bureaucracies in serving patient needs, can focus attention
more acutely on their narrower missions, and can foster creativity
rather than stifle it by demanding conformity.
The
minuses of decentralization
On
the other hand, smaller units can become isolated and slow to adopt
new knowledge, have less capital available for investment in
innovation, less expertise available for administrative and clinical
functions, and may have poor quality oversight. Excellent staff may
need to leave a practice to be promoted. The need to retain patients
can lead to poor medical practices in order to maintain popularity
(e.g., prescribing unnecessary antibiotics.) COE advantages might
not be realized if the patient-PCP unit does not search well for
superior referrals. Communications and information flows might be
inhibited by lack of community inter-operability. Leadership may be
dispersed instead of centralized, and network coherence might then
not be realized. Individual units may suffer by their lack of market
power.
Theory
vs. Reality
The
point is this: with so many pluses and minuses for each model, the
key to success will not be adopting a single model everywhere,
especially given America's taste for variety. Rather, most areas
will need artful adoption to the strengths of each area, capitalizing
on strong organizations and capable leaders wherever they are found.
Most solutions will be hybrid, combining the virtues of the VI model
and the COE model, and often using intermediate organizations such as
IPAs for coordination and leadership.xi
Although highly specialized services will generally be centralized
and primary care will most often be decentralized, it will be hard to
prescribe whether it is better to put them in the same organization
or keep them separate. Rather than any specific OS being ideal,
practical implementation and even improvisation will be most
important.
The
case for more than one system in an area is strong, because people
and preferences are different: both patients and professionals differ
in their tastes for smallness or for bigness, professionals differ in
their preferences for employment or entrepreneurial ownership, etc.
There
must be room for the brilliant individualist as well as the
consummate leader, and often these shining lights will not fit into
the same system.
Policy
Implications
The
traditional role of government is not to choose winners, but rather
(1) to ensure that the playing field for competing solutions is
level, (2) to protect against undue concentration resulting in
oligopolies and monopolies, and (3) to establish regulation where
concentration is desirable. In health care, where government has
been intimately involved and has been the ultimate funder for perhaps
2/3 of healthcare provision, it has also appropriately (4) encouraged
improvements by various grants and programs, (5) given feedback on
performance, (6) actively established and run health systems on its
own (Veterans Affairs, local safety net hospitals and clinics, public
health departments, etc.), (7) affected care policies through its
payment policies (DRG's, etc.), and done other things as well.
Even
while government aims at the public good, however, like other
entities, it is subject to its own prejudices. It is particularly
difficult to establish policies where an industry is in flux, as is
the case with healthcare. Established organizations typically
attempt to use their expertise, money and power to extend their
current predominance into the future, not only by making legitimate
progress on their own, but also by suppressing other organizations.
Government itself often tends to support larger organizations because
they are easier to deal with than decentralized systems, and
governmental officials might incline to the orthodoxy that larger is
better. That has certainly been the case with health care. Because
of these potential prejudicial factors, specific and overt policies
are necessary for non-prejudicial competition to prevail.
The
OS policy task is then to determine:
- Which policies can best support the development of local institutions nationwide, giving each area full freedom to develop its own pattern of organizational structure, without prejudice for which structures should be centralized and which decentralized?
- How can the interests of patients be placed as the central focus of organization?
- How can the interests of individual providers, as workers in the system and as representatives of a traditionally idealistic profession, be respected as well?
The
following suggestions for policy are aimed at those targets.
Acknowledging,
refereeing, self-assessing
Government
needs forthrightly to acknowledge that different solutions will be
appropriate for different areas of the country, and thus to declare
a
neutrality
policy for preference of scale of institutions,
understanding that larger organizations will need regulation is they
are oligopolistic.
To
operationalize this principle, government needs to take the position
that it will actively
take steps to seek to establish a level playing field for the
contending forces, and that it will continuously monitor and adjust
the conditions of engagement.
Government
should then
examine the implications of all of its present program policies
with regard to the agglomeration of organizations, and adjust
policies which are not neutral. (For instance, the ACO program
supports centralization without any balancing program for
decentralization; the Medicare Alternative Payment Models regulations
favor large organizations, and FTC regulations allow integrated
systems to negotiate with insurance companies, but does not allow
negotiation by more loosely aligned groups.)
Government
should also require itself to
inspect all proposed health care policies for their organizational
agglomeration implications,
and issue an agglomeration
impact statement
for each policy as a prerequisite for its being adopted.
Distinguishing
Centralized Effectiveness from Market Power
Operational
advantages
of size – such as economies of scale, administrative
specialization, decreased transaction costs and ease of internal
coordination, investment in innovation and quality enhancement –
benefit both the company and the public and need to be retained.
Market
power advantages
of scale, however, may redound only to the benefit of the
organization, and against the public interest. Government needs to
assess these differences and regulate the marketplace so that only
the former accrue to the advantage of the large scale organizations.
Examples follow.
Clinical
service pricing
Large predominant organizations – often hospitals – can be “must
haves” for networks, which results not only in high payment rates
for in-hospital services, but also in payment rates for outpatient
services by in-network clinicians that are much higher than those
obtainable by independent practices with less market power, not to
mention added on “facility fees” obtainable only by
hospital-based practices. Analogously, Federally Qualified Health
Centers (FQHC's) are paid much higher rates for their services than
independent practitioners. These economic rents are then translated
not only into profit and high administrative and clinical salaries,
but also into inducements for independent entities to be acquired
(clinician capture).
One solution to establish a level playing field would be to establish
all-payer rates for equivalent services in a locality or state, and
to allow balance billing so that more desirable practices could
benefit from a market. Allowing patients in IS's to access out of
network services and requiring the IS's to pay a discounted fee to
the accessed service provider would also be part of that solution.
Another solution would be to allow non-integrated clinical
associations to negotiate collectively.
Communication
and information
The Electronic Medical Record (EMR) is becoming the keystone modality
not only for patient record keeping, but also for communication and
coordination of care. Adoption of EMRs will soon be near universal.
Full inter-operability of EMRs, technically quite feasible, will
enable all providers to operate equally with one another, no matter
their ownership or affiliation. It is tempting, however, for larger
medical centers or (in theory) insurance companies to purchase an
enterprise-level EMR and restrict operability to network membership,
thus steering patients preferentially to network members and
restricting competition on price and quality (patient capture),
thus compromising the ability of PCPs in a PCMH to fulfill their
medical-fiduciary responsibility to their patients, and pressuring
practices to join the network (clinician capture).xii
Ensuring full interoperability of EMRs should be a governmental
level playing field responsibility.
Free substitution of services
Large systems also practice patient capture by not paying for
services that patients access outside their networks. This is
deleterious to patients, who might prefer alternative services for
various reasons, and protects elements within the large systems
which may be cushioned from competition and thus not be impelled to
seek improvement. Government should consider requiring that all
systems of care, including IS's, provide free substitution of
services. An IS patient might need to pay more to go out of network,
but that would be a choice the patient could make.
Equalizing
Governmental Developmental Support
Government has concentrated its system development support programs
on large systems. To level the playing field, government needs to
fund development of diverse systems equally, and not to decide
prematurely that large systems are the winners. For instance, grant
programs to areas to establish COE systems would balance the
attention given to ACOs. Another instance would be to offer support
for decentralized systems to help them accept non-fee-for-service
Alternative Payment Models.
Enforcing Anti-trust
Governments at both state and
federal levels have been complicit in allowing large hospital chains
to emerge, with the expressed belief that larger size will bring
improvements in cost and quality, despite the lack of evidence that
this has actually occurred. Simple enforcement of the law
with assiduous and astute evaluation of data should remedy the
deficiency.
Improving
Evaluation and Feedback
A
prime element that distinguishes the health care market from the
market for more mundane goods and services is lack of the ability to
evaluate the health care product. Quality measures are now far more
robust than in the past, but much more improvement will be necessary
for patients and payers to be fully informed. One persistent
problem, however, is that no simple measures reflect the quality of a
practice as a whole, yet collecting an extensive set of measures is
impractical, establishing cost data is particularly difficult, and
many important aspects of care still remain unmeasurable. In
addition, insurance companies assembling narrow networks continue to
conflate acceptance of low rates of pay with high quality.
Government
would be well advised to set in place procedures to make public sets
of measures as are illustrative, to be clear as to the limitations of
the implications of these measures, to practice good data hygiene in
making the data simple and clean to obtain, and to make it mandatory
for all EMRs purchased with government money to incorporate standard
data collection modules for these data. It would also be important
for the data to reflect multiple factors of care, and to incorporate
private social media techniques in gathering and communicating
information. Once again, it will be important to ensure that
evaluation does not preferentially favor large organizations, either
by the measures chosen, or by the data collection requirements
imposed.
Building
leadership capacity for the future
Finally, systems are dependent on personnel. Industrial theory has
recommended for a century that workers in the system be tapped for
their mental contributions to the industry they work in, from
suggestion boxes to workers councils to promoting from within. It is
actually scandalous that practicing medical professionals, one of the
most highly selected sets of personnel in the country, and one of the
most idealistic set of professionals willing to contribute to the
common good, are so often outsiders in the formation of policy.
Tapping this potential resource of experience, knowledge and
judgement needs to be a prime objective of national policy.
Potential leaders need to be identified and nurtured, and rank and
file professionals need to be taught the basic principles of
organizations and organizational behavior so that they may better
contribute to ongoing shaping of policy. Government would be well
advised to utilize both law and funding to help teaching institutions
and professional societies to provide this important education, and
to include this source of practicality in their councils more fully
immediately.
Conclusion
One
of the prime tasks of policy-making is to decide on the target. Too
wide becomes ineffectively diffuse; too narrow misses the forest for
the trees. Focusing on OS as the general area, and honing in on the
specifics of propelling development forward would make for effective
health policy. Critical thinking about the salient issues of OS
would lead to more even-handed governmental actions, and to
accelerated progress on achieving higher quality, lower costs, and
improved patient service. Beyond the passive leveling of the playing
field that I have stressed here, active governmental involvement in
cooperation with the private sector in devising regional solutions
would be salutary.
While
I have concentrated this discussion on OS as centralization vs.
decentralization, other criteria are certainly germane.
Not-for-profit vs. for-profit is a perennial subject, as is medical
versus business ownership. These and other criteria are certainly
worthy of evaluation. The overall message of this paper, however, is
this: it is difficult to believe that there is a single OS to apply
everywhere in the United States. If there were ever anything that
looked ready for state and regional experimentation and evaluation,
it is the Organizational Structure of health care delivery. Making
haste to focus on OS would be prudent
Budd
Shenkin
iCutler
DM, Morton FS, Hospitals, Market Share, and Consolidation. JAMA
2013;310(18):1964-1970.
iiIbid.
iiiEnthoven
AC, Managed Competition: An agenda for Action. Health Affairs: 7
(3), 25-47, 1988.
ivWilliamson
OE, Corporate Control and Business Behavior: An inquiry into the
effects of organization form on enterprise behavior. Prentice Hall,
Englewood Cliffs, NJ, 1970.
vMarsh
H, Do No Harm, St. Martin's Press, 2014.
viFreidson
E, Profession of Medicine: A study of the sociology of applied
knowledge. New York, Dodd Mead and Company, 1973.
viiStuckey
J, White D, When and When Not to Vertically Integrate. McKinsey
Quarterly, August, 1993
viii
Alford RR, Healthcare Politics: Ideological and Interest Group
Barriers to Reform. Chicago, U of Chicago Press, 1975
ixHalberstam
MJ, Liberal Thought, Radical Theory, and Medical Practice. NEJM,
284: 1180-1185 1971
xPorter
ME, Teisberg EO, Redefining Health Care: Creating Value-based
Competition on Results. Boston, Harvard Business School Publishing,
2006.
xiShenkin
BN, The IPA in Theory and Practice: Notes from the Field. JAMA, 273
(24), 1937-1942, 1995.
xiiJayanthi
A, Epic Under Investigation for Information Blocking in Connecticut.
Health IT & CIO Review.
http://www.beckershospitalreview.com/healthcare-information-technology/epic-under-investigation-for-information-blocking-in-connecticut.html.
Accessed May 11, 2017.
