Interlude: The Biggest Question

(This is part of a series: start here if you please.)

Perhaps you’ve caught onto the intractable problem at the core here. Adherents of the Market, denizens of the Polis—both have a valid point. Our care delivery is inefficient and too often not well-thought-out. Our prices are too high. As we noted at the beginning, the cost issue that’s come perilously close to tearing our system apart has two components: the prices we pay (an issue to which Marketeers are surely attuned) and the quantities we consume (of which the Polis-ians, with their focus on counterproductive volume incentives and the inefficiencies of disorganization, are acutely aware).

But we find ourselves in a situation where addressing one may exacerbate the other.

As insurer-provider negotiations have become increasingly bitter (and, in some cases, led to a cutting of ties), prices are a critical point of disagreement as large systems flex their market muscles to demand more than is sustainable, even as their allegedly better capacity to manage health and costs is supposed to be bending the cost curve. We're once again reduced to dueling giants battling over prices. As one consumer caught in the middle during the recent standoff between Blue Shield of California and the Sutter Health hospital system remarked, "While the whales fight it out, all of us little minnows get squished."

Yet if we break up the large systems (systems, the unifying concept of the Polis!) and devolve to the liberating chaos of the consumer-driven Market then how will we organize care to consciously overcome the inefficiencies of fragmented and myopic care delivery? 

The National Academy of Social Insurance examined the question of whether Integrated Delivery Networks (IDNs) are a good thing. They found little to give us hope.

There is scant evidence in the literature of either societal benefits or advantage accruing to providers from IDN formation. From the societal perspective, there is little evidence that integrating hospital and physician care has helped to promote quality or reduce costs. Indeed, there is growing evidence that hospital-physician integration has raised physician costs, hospital prices and per capita medical care spending. Similarly, hospital integration into health plan operations and capitated contracting was not associated either with clinical efficiency (e.g. shorter lengths of stay) or financial efficiency (e.g. lower charges per admission).  

From the provider perspective, the available evidence suggests that the more providers invest in IDN development, the lower their operating margins and return on capital. Diversification into more businesses is associated with negative operating performance. This is consistent with the management literature, which shows that diversification increases a firm’s size and complexity, in turn increasing its cost of coordination, information processing, and governance/monitoring.

The Oligarchs seem to do little to improve health or contain costs, despite their promise of being better equipped to assume and perfect population health management functions. A strong argument for the Market and its trust-busting ethos.

Yet health system CEOs will spout the Polis party line. Here's the head of Mount Sinai arguing in the Wall Street Journal that "Hospital Mergers Can Lower Costs and Improve Medical Care" by playing the population health management card:

However the populations is defined, in the near future a hospital's health-care delivery network will be paid a certain amount to care for a given population, and no more. In this model there is an incentive to keep patients healthy and out of the hospital to hold costs down. However, if expenses for proper care of its designated population climb above the level the hospital has been paid, the cost is borne by the hospital. 

This raises the stakes for all health-care providers. To mitigate that risk, hospitals need to broaden the populations they serve, and offer services that cover a larger geographical area. Without that wide range, there is too great a risk that costs beyond hospital walls during post-acute care, patients who are high utilizers of medical services, will unbalance the scales. Hospitals need a large pool to survive any increased medical needs and costly care. The larger net also allows hospitals to learn from different patient populations, such as the elderly, and make strategic decisions to improve their care. 

Stand-alone hospitals have neither the number of patients to manage the actuarial risk of population management, nor the geographic coverage to serve a large population. Hence the reason for allowing strategic hospital mergers 

Population health management means services must be coordinated so that primary-care physicians, specialists and hospital departments work together with all caregivers familiar with a patient's unique needs and status. This requires hospital systems to provide a full suite of services for their patient populations, warranting expansion through acquisitions of other hospitals, as well as physician medical practices and outpatient clinics.

But consider a recent NEJM perspective on the failure of a dominant health system earlier this year to acquire additional hospitals, allegedly in pursuit of a more robust population health management strategy:  Market-Based Solutions to Antitrust Threats — The Rejection of the Partners Settlement

[Massachusetts Suffolk County Superior Court Judge Janet] Sanders's ruling [against a pending merger] closes the latest chapter in the saga of Partners HealthCare, a system formed in 1994 as a merger between the world-famous Massachusetts General and Brigham and Women's Hospitals. Beginning in 2010, then Massachusetts Attorney General Martha Coakley presciently warned of Partners' growing pricing power, and her office issued several reports revealing that the merged entity often charged two to three times as much as other equal-quality systems treating patients with equally complex conditions. According to an independent agency created to control Massachusetts health care costs — the highest per capita health care costs among U.S. states — Partners was able to leverage its dominant hospital and physician network to extract favorable pricing from private health insurers. The agency opined that Partners' expansion plans were likely to continue increasing costs in these markets with no impact on quality.

Once again, the better-organized, Polis-oriented cost management systems argument vs. the Market-based, anti- price-setting consolidator perspective. Let them merge and test their claim that doing so will allow them to deliver better top-to-bottom care, or deny them that opportunity on the assumption that they'll just use it to drive up their unit prices.

Which leads us to what I consider to be perhaps the biggest health policy question of our time: should we allow health care providers/systems to integrate vertically and/or horizontally on the promise that they can better manage the health of populations and assume risk for rising health care costs? (Certainly this is the premise of the ACA's ACOs, though the FTC would and has argued that they're preserving competition and preventing consolidation.) And, if so, how? How do we do that while mitigating the risk that these new empires will use their increased market power to extort higher prices from health insurers at the negotiating table?

Maybe we see no obvious way to do that. But, lest the pendulum swing too far in favor of the Market's unaffiliated hawkers of individual health commodities, how do we build coordinated systems of care that meet the whole-person needs of the high-cost, high utilizers without the integrated health care Oligarchs (or some functional equivalent)?

This is, of course, merely the embodiment of the questions we've been considering all along. Communitarianism vs. individualism. Polis vs. Market. Organized "systemness" vs. the emergent wisdom of consumer-driven provider competition.

If you don't have a good answer to these questions, you can be forgiven. No one seems to.

In the final post of this series, I'll try to make some coherent sense of all this.