I continue to think that this issue needs attention! Government policy needs to focus on organizational structure, and not just blandly accept the increasing concentration that is more and more pervasive. Here is a 2,000 word version of the paper I presented last time, and which has gotten excellent reviews from readers. For those of you who skipped the first version, this should be more digestible. (I apologize for the difficulties in line formatting -- Word and Open Office get mixed up on my Apple and Windows computers.)
A Problem in Search of a Policy: The
Emerging Organizational Structure of Health Care
Budd N. Shenkin, MD, MAPA
June, 2017
The
organizational structure (OS) of health care delivery is changing rapidly and
profoundly, as both horizontal integration (HI) and vertical integration (VI)
are producing larger and more centralized units of production. This is important, because if we want health
care with the Triple Aim of lower costs, higher quality, and more impact, the
OS must be conducive to improved functioning.
Yet, amazingly, public policy seems not to have taken an overt stand on
OS, and in practice, in concert with the most powerful political and economic
forces that currently dominate the industry, has notably favored agglomeration
and centralization.
In
fact, however, there is scant evidence that larger units are particularly
conducive to theTriple Aim, and in practice both patients and professionals
often prefer smaller units.[i] If one accepts that the problem of scope and
scale has not been solved, then it should be clear that an intelligent policy
guiding OS will be even-handed in allowing best solutions to emerge rather than
forcing a foregone conclusion.
Agglomeration
Is Increasing
Both HI and VI are ubiquitous. “Sixty percent of
hospitals are now part of health systems.”[ii] Independent physician offices are morphing
into single-specialty groups and community clinics. Health insurance companies are fewer, larger,
mostly for-profit, and richer.
Multi-specialty groups abound; hospitals employ over half of the
physician force, and have absorbed aftercare units.[iii] The completely integrated system (IS) Kaiser
Permanente continues to dominate California's market and similar systems are
growing. Accountable Care Organizations
(ACO's) are VI creatures. Large hospital
centers are increasingly partnering with insurance companies or trying to bring
the financing arm in-house. Insurance
companies are buying practices and extending into clinical services such as
care management and telehealth.
Pharmacies own and run urgent care clinics. Clearly ownership of the means of production
is shifting from professional dominance to corporate control.[iv]
Evaluating
Agglomeration
For agglomeration
Mid-20th century liberals
derided the traditional decentralized system as a “cottage industry,” proposing
its replacement by more modern industrial model “prepaid care”
organizations. The
business-oriented Nixon Administration agreed, renaming “prepaid care” as
Health Maintenance Organizations. Later,
Alain Enthoven suggested that “the provider community must be divided into
competing economic units” with his concept of “managed competition.”[v] Today, the argument for larger integrated entities has become
orthodoxy.
The hope is that larger
organizations will:
·
Rationalize and economize by internalizing operations
·
Improve operations by utilizing administrative professionals
·
Relieve rank and file physicians from administrative operations,
while identifying others for administrative leadership roles
·
Shift priorities to prevention and efficiency by unifying costs
·
Introduce economies of scale
·
Use concentrated resources to foster innovation and cushion the
risk of failure
·
Utilize lesser-trained professionals rationally
·
Adjust securely to new payment schemes by payers.
In addition, larger size
organizations can use increased market power to:
- Negotiate better terms with payers
and suppliers
- Influence government policies
- Facilitate recruiting
and advertising
Against agglomeration
Less talked about, however,
are the equally compelling minuses of agglomeration and the diseconomies of
scale:
- “In
companies with lots of divisions and product lines, it’s hard for
executives to concentrate on the core business.”[vi]
- In
academic centers the research agenda may trump clinical service
- Within
VI entities highly profitable specialties can trump the attention paid to
non-procedural care.
- 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.
- Administrative
overhead can expand needlessly
- Bureaucracies
can induce conformity and stifle creativity
- Promotion
of clinicians can depend on deference to administrative leaders.[vii]
- Profit-driven
and power-driven leadership can drive out the medical ethic.
- Clinicians
in large groups may seek approbation from colleagues rather than patients.[viii]
- Patient
service can become a bureaucratic afterthought
- IS
physicians benefit financially from in-network referrals, which may
violate kickback norms
A seminal paper warned against VI, asserting that the difficulty
of management usually trumps the advantages, and observing that VI usually
seeks increased market power rather than improved performance and efficiency.[ix]
For decentralization
The conservative American
Medical Association was the earliest defender of the decentralized status
quo, citing a better doctor-patient relationship
and the positives of professional dominance. In 1971 a brilliant article by physician Michael
Halberstam surprisingly supported the AMA anti-corporate position from the
Left, citing authentic person-to-person relationships in smaller organizations.[x] Today, a contemporary business theory
supports decentralization in the form of the Centers of Excellence (COE) model.[xi]
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 the
Patient Centered Medical Home (PCMH) version of this model, for instance, the
patient and primary care provider (PCP) would together choose referrals among
competing specialists, procedural centers, and hospitals, rather than being
tied into a mandatory network. This
model overcomes the medical market problem of poor patient knowledge, and
enables clinicians to best serve their medical-fiduciary responsibility of
seeking the best for their patients.
The hope is that smaller units may:
- Reduce
bureaucracy and administrative overhead, substituting modern information
and communication technology
- Expose
all units to true competition
- Improve
quality of implementation by each unit’s having a narrow mission
- Incentivize
professional and financial performance by ownership
- Allow
unfettered innovation
- Increase
the quality of personal connections for both employees and patients
- Improving
the caring function
- Fostering
patient centered care
- Easing
communications
- Enhancing personal understanding
Against decentralization
The fear is that smaller units may:
- Become
isolated and adopt new knowledge slowly
- Have
less capital available for investment in innovation
- Administer
inexpertly
- Enhance
quality inexpertly
- Be
unable to promote and retain excellent staff
- Indulge
in poor medical practices to maintain popularity
- Refer
on other bases than quality and cost
- Communicate
poorly if there is no EMR inter-operability
- Be
unable to muster leadership in the practitioner community
- Suffer
from lack of market power.
Theory vs. Reality
The point is this: no model is preordained to be ideal. 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. Most local
solutions will probably be hybrids, often using intermediate organizations such
as IPAs in variable combinations, and building on strong organizations with
favorable cultures and capable leaders where they are found.[xii] 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. If patterns are allowed to vary from place to
place, that will be a very American solution.
Policy Implications
Since no single model is
ideal, government should facilitate development of these varied models by
leveling the competitive playing field, and focusing on outcomes that promote
the Triple Aim.
Acknowledging,
refereeing, self-assessing
The first policy step is
clear: government should openly declare itself neutral of the question of scale
and scope of organizations. Implementing
this policy will be difficult, as government will need to:
- Resist efforts of entrenched
interests to predominate
- Resist its own tendency to
favor large size
- Continuously monitor and
referee the competitive marketplace
- Regulate
concentrated markets
Government should then
adjust its own current policies accordingly, for instance:
- Balance ACO encouragement of
large institutions with equal funding for decentralized solutions.
- Adjust Medicare APM programs
that currently reward larger practices over smaller ones.[xiii]
- Adjust Federal
Trade Commission and state agency policies that allow concentration of
hospitals and insurance companies which can then overwhelm decentralized
clinical practices.
Government should also
adopt policies to ensure neutrality of future programs. New programs or policies should be required
to develop an agglomeration impact statement prior to adoption, and an
oversight group should assess periodically whether or not overall balance has
been achieved.
Distinguishing
centralized effectiveness from market power
Operational advantages of size – such as economies of scale, administrative
specialization, improved internal coordination, investment in innovation, etc.
– may benefit both the company and the public.
Market power advantages of scale, however, may confer advantage
only to the company. Governmental
regulation needs to retain the former and abolish the latter. For example:
Clinical service pricing
Large
“must-have” hospitals extract higher payment rates than independent practices
providing the same services can (plus “facility fees”). Federally Qualified Health Centers are similarly
advantaged. These economic rents are
translated not only into profit and high administrative and clinical salaries,
but also into inducements for independent entities to be acquired and for new
clinicians to seek employment at these larger facilities (clinician capture).
Possible
solutions would be:
·
Establishing
all-payer rates for equivalent services in a locality or state, allowing
balance billing so that more desirable practices could benefit from the
market.
·
Allowing
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,
including referrals and consultations.
It is tempting for large medical centers 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,) as well as incentivizing practices to join
the network (clinician capture.)[xiv] Enforcing the technically-feasible full
inter-operability of EMRs and effectively forbidding patient steering would
level this area of the playing field.
Free substitution of services
Systems
protect their less-desirable in-network components by refusing to pay for out
of network services. Mandating
reasonable out of network payment, even if discounted and with patient out of
pocket payments – even for IS's – would advantage patients and provide
incentives for progress for both independent and in-network components.
Improving Evaluation and Feedback
Evaluating
the achievements of competitive systems is essential for progress. Government should invest far more in this
mission, mandate non-disruptively obtainable standard quality and cost
evaluation mechanisms, and establish regular feedback channels to professional
and popular audiences. Government also
should establish a reward system for quality and cost advances that provide
sufficient incentives for systems to benefit even while they lower costs,
perhaps by new licensing rules for cost-savings developments (analogous to
scientific advances) or a prize system for developers.[xv]
Building leadership capacity
Companies
often prosper by finding leaders who are adept both professionally and
administratively, and educating workforces to be participative in
organizational guidance. Health care
professionals are rarely trained in organizational skills. Government should
invest in training all professionals in the basic principles of organizations
and organizational behavior, with enhanced pathways for potential leaders.
Conclusion
OS is not the only
influence on the performance of the health care system, but it is arguably the
most significant. Government needs to
develop policies that will nurture the abilities of communities and
professionals to develop systems that accommodate to local strengths. The United States has traditionally welcomed
local variation. Government would be
well advised to follow that American tradition and adopt policies that treat
alternative organizational structures equally, and to focus its attention on
measuring cost, quality, and service outcomes in local areas, with the aim of
feeding back these findings to the areas in question, as well as identifying local
solutions that can be either adopted or avoided elsewhere .
[ii] Cutler DM, Morton FS, Hospitals, market
share, and consolidation.
JAMA
2013;310(18):1964-1970.
[iv] Alford RR, Healthcare Politics: Ideological
and Interest Group Barriers to Reform.
Chicago: University of Chicago Press, 1975
[v] Enthoven AC, Managed competition: an agenda
for action.
Health Affairs 1988;7 (3):
25-47.
[vi] Williamson OE, Corporate control and business
behavior: An inquiry into the effects of organization form on enterprise
behavior.
New Jersey: Prentice Hall,
1970.
[vii] Marsh H, Do no harm, London: St. Martin's
Press, 2014.
[viii] Freidson E, Profession of medicine: A study of
the sociology of applied knowledge.
New
York: Dodd Mead and Company, 1973.
[ix] Stuckey J, White D, When and when not to
vertically integrate.
McKinsey
Quarterly, August, 1993 (Accessed June 14, 2017 at
http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/when-and-when-not-to-vertically-integrate)
[x] Halberstam MJ, Liberal thought, radical
theory, and medical practice.
N Engl J
Med 1971; 284:1180-1185.
[xi] Porter ME, Teisberg EO, Redefining health
care: creating value-based competition on results.
Boston, Harvard Business School Publishing,
2006.
[xii] Shenkin BN, The IPA in Theory and Practice:
Notes from the Field.
JAMA 1995;
273(24):1937-1942,.
[xiii] Casolino LP, The Medicare Access and CHIP
Reauthorization Act and the corporate transformation of American Medicine.
Health Affairs 2017; 36(5):865-869.
[xiv] Allen
A, Connecticut law bans ehr-linked information blocking.
Politico 10/30/2015.
(Accessed June 14, 2015 at
http://www.politico.com/story/2015/10/connecticut-law-bans-ehr-linked-information-blocking-215400)
[xv] Kellerman AL, Desai NR. Obstacles to
developing cost-lowering health technology: the inventor’s dilemma.
JAMA 2015;314(14):1447-1448.
