On Competition

It's been a while since I last used the Speakeasy to muse. But I've got competition on the mind.

One of the axioms I laid out in Single-Pay It Forward was "If well-functioning markets are possible, they are preferable to the alternative." I still believe that, if only because all things in life necessarily involve trade-offs and the most ethical seat of decision-making between those alternatives is with the individual impacted by them. But as always I'm mindful of the realities of bounded rationality and the need for the sorts of Nudge-style decision-making aids I talked about in one of my favorite posts, Order Out of Chaos.

If we could have markets in health care, what would that mean? Broadly speaking, I think there are three possibilities: one centered on active competition between insurers and two more centered on direct competition between health care providers (e.g., doctors and hospitals). The options as I see them are:

Option 1: Trust in the insurers

The world in which we live now is largely one of so-called managed care competition. That is to say, health insurers negotiate contracts with health care providers and through those negotiations they theoretically fight to constrain rising provider prices and encourage cost control on the part of the providers. Meanwhile, on the consumer side they attempt to avoid unnecessary spending by keeping an eye on the services their enrollees use, either by relying on the patient's primary care provider to serve as a sort of gatekeeper to the rest of the health care system or by requiring patients and their providers to receive direct authorization before they undergo any major procedures.

The appeal of the notion that contractual relationships between private actors jockeying for position relative to competitors provided the needed dose of market dynamics in health care is part of the impetus behind the decline of active price-setting for hospitals two and a half decades ago. And it still has an appeal.

The insurer designs a range of products, all with different expectations of the buyer's responsibility at the point of care, different provider networks, perhaps innovative benefit designs and ties it up with a neat bow and a single all-encompassing price (the monthly premium). The trade-offs are there for inspection and the sum total of their impact is represented in the premium of the product. An insurer that does a better job of negotiating competitive prices with providers, designing payment incentives for providers that encourage and enable cost control, crafting high-value networks and smart products that constrain spending growth can offer lower premiums. And the insurer that offers the lowest premium is the most attractive in the open market.

Why it hasn't worked and how it could. What's the catch? Well, other than the very small marketplaces created by the Affordable Care Act for people who don't get insurance through their employer, a competitive consumer market doesn't exist in health insurance. The vast majority of people (~170 million out of the ~190 million privately insured people in the country) get insurance through their job. That means their employer either buys an insurance product for them or, as is the case for most of those people, their employer is their insurer, directly setting aside money to pay medical claims and only buying administrative services, not an insurance product, from health insurers. That severely dampens the incentive for offering the most cost-effective product; as Milton Friedman noted--correctly, I believe!--about health insurance, "nobody spends somebody else’s money as wisely or as frugally as he spends his own."

The experience with ACA marketplaces bears this out. Those marketplaces have proven to be remarkable effective at fostering competition between insurers, in no small part because consumers are incredibly price conscious when spending their own money and making their own decisions. In those circumstances it really is most valuable to be the most cost effective, low premium option in the marketplace. This is true even though the overwhelming majority of shoppers in the marketplaces receive premium subsidies because those subsidies preserve the relative prices/premiums of those competing products.

So I'm coming to believe that if competition between insurers is going to save the whole system we need more people to be in direct consumer markets for insurance. That way insurers really are incentivized to offer the most cost-effective and desirable insurance products available. And I think that means people need to stop getting insurance through their employer. Or at the very least they need to be taking an employer subsidy and applying it to a plan of their choice in an open market, similar to the SHOP exchange concept in the ACA that's regrettably never really found its footing.

Option 2: Sideline the insurers

The next possibility is that we don't ask so much of insurers after all. One of the hallmarks of managed care competition is that there are no real prices among health care providers because every insurer negotiates and pays a different price for the services the provider offers. That's one of the reasons price transparency has been so challenging a concept in health care--if you and I have different insurers, or perhaps even different products from the same insurer, then that X-ray at Hospital A won't necessarily have the same price for us.

Perhaps we shouldn't rely on teams of a handful of (well-meaning!) negotiators from an insurer and a provider system hashing out agreements in conference rooms to shape our prices, choices, and futures.

If instead the rates charged were all-payer--that is to say, the same for all comers--they would act like the prices for services in most industries. And with the veil of proprietary secrecy lifted on the prices of health care services, providers would have to compete directly with each other for customer-patients. Sunlight, here price transparency, would be the best disinfectant. And rather than relying on a privileged few to shape our decisions for us, as in Option 1, the market is shaped by millions of unconstrained consumers voting with their feet.

Why it hasn't worked and how it could. Standard pricers for all comers aren't common these days. But even if they were it wouldn't necessarily matter for reasons I walked through (with visuals!) in The Health Care Market. The only way the price differences matter and impact consumer choices--and through market feedbacks thus impact where providers set their prices--is if consumers feel them. It has to cost you the consumer more when you go to get a $1,500 procedure from Provider X instead of getting it for $800 from Provider Y. Otherwise the price differential doesn't shape behavior and the market is broken.

In this option we're sidelining the insurers: they no longer have to come up with clever reimbursement models that incentivize efficiency or cost savings, they don't need to negotiate prices with providers, they don't need to construct networks of providers (every provider is in! the insurer just pays its part of the bill). But they do need to construct insurance benefit designs that make sure you feel the impact of price differences between health care providers.

Maybe that's through a big deductible, though there are limits to that approach. Maybe that's through reference pricing, though there are limits to that approach. Maybe that's through coinsurance, though there are limits to approach. Or combinations of all these things. Or something else entirely. I don't know. But they need to figure out a way to pass through the price differences--if not the full prices themselves--to you the consumer so that providers are pitted against each other head-to-head.

Option 3: Eat the insurers

Another possibility is to get rid of insurers. Or rather subsume them into integrated health care provider systems. Sure, it wouldn't work in all health care markets (or maybe any). But health care providers themselves would take on insurance risk for their patients, essentially selling memberships of subscriptions to their networks of doctors and hospitals. You would pay a monthly premium right to the provider system--more likely its embedded insurance arm--and they would be at risk for 100% of the health expenses you incurred.

In some sense this is similar to Option 1 in that a single premium dollar amount offered in the marketplace sums up a number of factors bundled beneath the surface. If you want access to the prestigious brand of a higher-cost provider system in your market, you can buy into it but the costs of that choice are readily apparent to you in the premium associated with that system vs. those of its competitor(s). But it's also similar to Option 2, in that the differing cost structures/prices of competing providers are laid bare for the consumers (not obscured from the consumer as in Option 1) and submitted for their judgment in the open market.

Why it hasn't worked and how it could. Not all markets can support multiple competing provider systems. And while provider-sponsored insurance plans have proliferated (i.e., providers have been experimenting with directly offering their own insurance products), the results haven't always been pretty. And those insurance products are generally nowhere close to offering exclusive or near-exclusive access to those provider systems.

But if the push toward accountable care organizations accelerates and intensifies, provider systems will likely continue to tamp down on out-of-system referrals in favor of keeping their managed patients in-system. And as integrated but insular care becomes more common, the financial models (and rewards) accompanying the trend may push provider systems toward pricing and marketing their system to consumers directly. One could argue this is the logical end-state of the ACO craze. Not to mention the only way to credibly marry the need for integrated, patient-care with the imperative for some semblance of market dynamics in health care.

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So where does this leave us? I'd be remiss if I didn't note that we have to acknowledge the fundamental limitations of applying a market approach to health care. Not least because Kenneth Arrow, author of the definitive early work and unrivaled classic on the topic ("Uncertainty and Welfare Economics of Medical Care"), just died five weeks ago.

And there exist key unavoidable realities that nudge us toward the conception of health care we discussed back in The Heath Care Polis. Most of our national health spending is concentrated on a small segment of the population, many of whom have multiple chronic conditions that send their expenses into the stratosphere. Many expenses, particularly on the inpatient side, will realistically always be beyond the reach of any effort to expose consumers to their price. And even when patients can be exposed to prices of high-cost procedures, such as through reference pricing, savvy providers can lower prices on those procedures to be competitive even as they raise prices on services behind the veil to avoid losing any revenue overall.

That doesn't mean market dynamics where we can have them aren't worthwhile. For instance, under Option 3 a provider system must account for all of its costs in the premium it markets to the consumer for entry to its system. There's no opportunity for sleight of hand like dropping prices on reference priced procedures while raising them on un-reference price-able procedures.

As alluring as the all-payer rates and relative administrative simplicity of Option 2 may be (it's the approach that envisions health care acting the most like other, regular markets), I don't believe it's actually a practical possibility. Direct price exposure is ultimately limited by the same reality that makes health insurance necessary: health care prices dwarf people's financial means. People will hit the inevitable out-of-pocket limits and the incentive will switch off just as we're nearing the  threshold of those services that are truly driving our national spending.

Option 3 may be realistic in some places, but it's hard to imagine it being the answer to the problems of our health care system on a large scale. Patients will always "leak" between systems, either by their own volition or because, oddly enough, it's more attractive for the expensive system to which they're attributed and has financial responsibility for them to send them to lower-priced competitors.

That leaves us with Option 1, which is simply a spin on the world we already inhabit. At the end of the day I think we do need a market organizer, the "dictators exercising great power" (in the words of Bernays) who design the choice architecture we use to make sense of the world and who enable us to make the best possible decisions with what limited time and energy we have. Insurers can design more limited or tiered network products that prod us toward lower-cost providers, they can employ value-based insurance design to nudge us toward the smartest treatment options, they can provide the infrastructure and payment incentives to support the benefits of an ACO-centric provider world without requiring the consolidated mega-provider systems of Option 3, and they can aggressively negotiate on health care prices.

Instead of leaving consumers to respond directly to price signals from providers, insurers can bake their own assessments of relative value into the financial incentives and signals sent to consumers by the structure of their products, all without discouraging those who need chronic care from pursuing needed treatment. And if they're successful in all of the above, they'll best their competitors by putting forth offerings with the most competitive premiums--the single, consolidated price bundling the fruits of all the above-mentioned efforts. They can make the most of behavioral economics and smart payer-provider contracting to market directly to consumers the best-priced insurance products and, in turn, hold health care providers in check. The catch is that consumers have to be in the market for such products: which means no one else, such as an employer, can be choosing their insurance products for them. And insurers will need to get in the business of insuring people, not providing risk-less administrative services. A sharp departure from the current norm that will require some potentially tumultuous policy changes.

But in the end I think I've talked myself into learning to love managed care. Viva la insurer competition!

Philosophical Thought of the Day

JC on the contrast between Prometheus ("the Greek Titan, a sublimation of the image of the self-reliant, shamanistic trickster, who frequently comes off badly at the end of an adventure") and "the humble piety of Job":

These two traditions are mixed in the inheritance not only of the West but of all civilizations and represent the poles of man's spiritual tension: that of the priestly representation of the power that shaped the universe as a force beyond human criticism or challenge, the power that made the sun and moon, the seas, Leviathan, Behemoth, and the mountains, before whom man's proper attitude is awe; and, on the other hand, that of the intransigency of the self-sufficient magician, the titan power of the shaman, builder of Babel, careless of God's wrath, who knows that he is older, greater, and stronger than the gods. For indeed, it is man that has created the gods, whereas the power that created the universe is none other than the will that operates in man himself and in man alone has achieved the consciousness of its kingdom, power, and glory.  

--Joseph Campbell, Primitive Mythology (Masks of the Gods, Volume 1), p. 279

The State of Health Policy Today

At What Price?

I want to muse on health care costs for a bit.

Let's start with an exercise. Most health services are paid for by payers falling into three broad categories: private health insurance, Medicare, and Medicaid. Together, these three account for nearly three-quarters of health consumption expenditures in this country.

But they pay very different prices for the services they buy. For a given health service, private health insurance will pay the highest price, Medicare a lower one, and Medicaid a lower price still. But let's imagine everyone had Medicare. More specifically, let's look at how much each of these three payment categories actually spent on health care in 2015 and then imagine what they would've spent if they had paid Medicare prices.

This is a little rough, but let's assume the price relativity across these three payers is: Medicare = 1.0, Medicaid = 0.67, and private health insurance = 1.6 (that last one seems plausible based on this AHIP data brief). In billions of dollars, we have:

	2015 spending, actual	2015 spending, if repriced to Medicare rates
Private insurance	$1,072	$670
Medicare	$646	$646
Medicaid	$545	$814
Total	$2,263	$2,130

So using my rough price relativity numbers, total spending on the patients these payers insure would be a little less than 6% lower if all services were reimbursed at Medicare rates (coincidentally, the average hospital margin on Medicare was almost -6% in 2014). The point of all this being the amount of revenue paid to health care providers is, loosely speaking, pretty close to what it would be if everyone currently in those three buckets was in Medicare. And that's because what you save by reducing private health insurance payments to Medicare rates, you mostly give up by increasing Medicaid payments.

So it's not completely out of line to think that insurance payments in the U.S. roughly average out to be in the neighborhood of what Medicare pays.

MedPAC, the body that advises Congress on Medicare payment policy, recently put up an interesting blog post that considered the gap between the prices Medicare and private health insurance plans pay hospitals in the U.S. In it they observed:

The literature and our analysis suggests that Medicare’s hospital payment rates are roughly 50 percent higher than hospital rates in other OECD countries (MedPAC 2014). Commercial insurers’ hospital rates in the United States are often over 100 percent above OECD rates. 

Just as Medicare rates are about 50 percent above OECD, U.S. hospitals’ input costs are also about 50 percent higher than input costs in other OECD countries after adjusting for the cost of living (International Federation of Health Plans 2013, Koechlin et al. 2010, Organisation for Economic Co-operation and Development 2012). 

That's an interesting point. Despite setting its own prices, Medicare still pays substantially more than insurers in other countries pay their hospitals. Which perhaps is obvious if we (1) accept the conclusion above that Medicare reimbursements are the average reimbursement level for American insurance, give or take a few percent, and (2) observe that the U.S. spends significantly more on health care per capita than the rest of the world.

So we (specifically Medicare) are paying hospital prices that are 50% higher than those in other countries, but the cost to hospitals of their inputs is also about 50% higher here. So what are those inputs?

Several years ago the Massachusetts Hospital Association produced a paper laying out the expenses that make up hospital costs. The data is over a decade old now and reflects the costs faced by Massachusetts hospitals, but I imagine the picture hasn't changed substantially and is more-or-less broadly applicable. It's the best source I know of that lays out the components of a hospital's costs and their relative contributions.

As you can see from the figure to the right, a full two-thirds of those input costs were labor costs: salaries, wages, and benefits.

(The story is even more tilted toward labor costs if you get out of the hospital world and go into the world of physician practices. The 2014 MGMA Cost Survey of physician practices found that total physician, total non-physician provider, and total support staff costs together comprised 85% of total practice costs!)

Previous explorations by MedPAC of cost differences in the U.S. vs. OECD countries have found that:

• Medicare pays physicians ~50% more than physician labor costs in other countries
• Nurses make 50% more in the U.S.
• Drugs and devices cost about 50% more here

Their conclusion in looking at all this is that Medicare prices are in line with costs in this country:

Given the similarity between these [price-to-cost] ratios, the relationship between payments and costs in Medicare appears similar to those in other OECD countries. In other words, Medicare rates and rates in OECD countries both reflect the relative input costs in those countries.

And if we accept my argument above that Medicare prices are more or less the American price for health care (with lower Medicaid prices roughly balancing out higher private health insurance prices), then more generally our prices--long known to be quite high by international standards--are in line with costs.

So then the question is: how much can we get those costs down? And how much should we?

In that MedPAC blog post, they're somewhat optimistic that putting pressure on providers (i.e., in terms of the prices we pay them) like hospitals will cause them to clamp down on those costs. But thinking just of hospitals, if those Massachusetts numbers are still roughly correct then drugs and devices, etc make up less than a quarter of hospital input costs. Meaning if hospitals could somehow be empowered and enticed to muscle their suppliers' prices down by 50% (which seems like a tall order), that would only close a third of the gap with the OECD nations.

Cutting costs in any serious way means substantial cuts to wages or jobs or both. (I'm not even considering the potential downstream labor impact of cutting prices in the device and medical supplies industries in half--I'm thinking here only of those jobs directly supported by hospitals).

As is often remarked upon, health care is a significant chunk of the national economy. Hospital systems are often the economic anchor of their region and it's not unusual for the largest non-governmental employer in a state or area to be a health care system. These are often solid middle class jobs, generally safe from outsourcing and the like (indeed, health care is sometimes considered one of the few "recession proof" industries--not entirely accurately but there's some truth to that).

We want to pay less for health care, but do we want to cut jobs and wages in that sector? (These seem to me to be flip sides of the same coin.) And if so, how much?

This is incidentally one of my major sources of discomfort with enthusiasm for single-payer health care: it hides this central question. Touting savings and lower prices while obscuring where those savings come from seems a bit disingenuous and shuffles past a conversation that desperately needs to be had.

29

Sisyphean Wars

I'm going to talk about the new Star Wars. Spoilers are a given.

I've been thinking back to a very old post, What Lies Ahead?, where I tried to boil down the various futures envisioned in sci-fi to a handful of archetypes. Star Wars is arguably not sci-fi per se but it strikes me that its world is in many ways a very soft version of what I dubbed "The Wasteland":

The Wasteland

This future inherently assumes that the hubris of man will lead to his downfall. In The Wasteland, the human race has been partially or mostly destroyed and the remnants of humanity are locked in a constant struggle for survival. In most incarnations, it is the inevitable outcome of the Technocracy. For example, in Terminator and The Matrix the creation of advanced artificial intelligence ultimately backfires and leads to the destruction of much of the human race. In 12 Monkeys, human tampering with dangerous viruses kills most of the population and drives the survivors to a primitive existence underground.

The Wasteland is invariably post-apocalyptic. Regardless of whether he retains a measure of technological prowess, man has regressed substantially. His (perhaps foolish) primary goal is to regain what has been lost, often without any clear conception of how he will prevent history from repeating itself. I would classify the future depicted in the original Planet of the Apes as The Wasteland because it contains numerous themes of rebuilding a fallen society (the astronauts' entire voyage is designed for such purposes: of the woman astronaut, Charlton Heston explains "She was to be the new Eve" and it seems clear he has similar designs on the mute future-human Nova).

Star Wars, of course, is not post-apocalyptic and isn't quite as grim as the sci-fi movies that employ this trope. But it is a story of what happens after The Fall, when evil vanquishes good and a once great republic gives way to the yoke of tyranny and oppression. What virtue remains is stored in the outlaws and marginalized under the new regime: declared enemies of the state long-since resigned to seclusion; moisture farmers living beyond the reach of the Empire but not beyond that of local gangsters like the Hutts who rule their world; rebels living the smugglers' life in ice caves.  (Far from a unique circumstance in sci-fi: think of Firefly's losers of the Unification War, the Browncoats, who drift into ever less civilized outer reaches of their solar system.)

What the original trilogy promised us was life after The Fall. Restoration of an idealized past (a more civilized age). Good once again triumphing over evil. But that was only part of the allure. We got to follow the hero's journey; the interruption of his frustrated and mundane existence by his call to adventure invited us to quench our thirst for the same. His growing awareness of his dormant greatness and unrealized potential--nay, his destiny--resonated because it struck a universal chord of aspiration in all of us. And magic, infinite in its amazingness and utility to our hero, was real! Luminous beings are we! (Not this crude matter.)

And we got to explore the redemption of a man, not just a society. Iconic as he was, ever physically imposing and sinister, the Vader of Episode IV was ultimately the mundane administrator of a fascist bureaucracy. He was Eichmann with magic powers. Only a mysterious past and hints of motivation beyond the mere banality of evil made him something more and gave momentum to his evolution and illumination in the subsequent films. The denouement of Luke and Vader's journeys coincided: the moment when Luke, justifiably declaring himself at last a Jedi ("...like my father before me") definitively rejected the allure of the Dark Side, offered forgiveness instead of retribution to his fallen father, and placed his fate in the hands of Palpatine and Vader.

But now with Episode VII our perceptions are forever altered. Because now we know. When we watch our heroes in their moment of elation and triumph on Endor we know, as perhaps we should've always suspected, that it was not to last. Their futures held only pain, failure, and ultimately loneliness. For Luke, the failure to resuscitate the Jedi Order, loss of his family, and self-imposed exile. For Han and Leia, the loss of a child and the deterioration of their relationship. Despite references to a new republic, the rise of a new fascist state and superweapon suggest ongoing civil war at best, a galactic failed state at worst.

Three decades have passed but our heroes are as we met them: Leia dogged in her dedication to the cause of the rebellion/resistance but alone; Han a dashing ne'er do well ruffian, alone save for his walking carpet; Luke once more relegated to a lonely galactic backwater, removed from events shaping the galaxy and once more staring toward the horizon (the twin sunset traded for an endless oceanscape). Their victories, their very existence now only the stuff of legends.

The parallels--or anti-parallels as the case may be--between the original trilogy and the new one are obvious and enjoyable. A new young hero has been called to unexpected greatness; a father offers forgiveness to a son (with much different results than the Luke-Vader analog); and a long journey is only just begun. It seems likely we will be treated now not only to the story of Rey's journey  to mastering the Light Side, but the story of Kylo Ren's concurrent descent and mastery of the Dark side. And as fans of The Godfather know, the story of a man's descent into evil can be just as good.

But if, as many have noticed, Kylo Ren is what we wish Anakin had been in the prequels it's because his story promises to essentially be Anakin's (but better acted). Just as Rey's promises to be Luke's. Some have suggested that when Episode VII slipped beyond homage to rehash it damaged itself (see "Critics are going too easy on Star Wars: The Force Awakens"). And to be sure, this film and the journey it promises have reminded me of the immortal and oft-repeated line from the Battlestar Galactica reboot: All of this has happened before, and all of it will happen again. That isn't meant to be a criticism as that can be an important theme about the folly of man and the cyclicity of human events: indeed it's one that's often implicit in The Wasteland concept I mentioned above.

What's intriguing is the possibility that the Jedi, purveyors of the universal Force, are in fact the truest embodiment of the relativist absurd man in the Star Wars universe. Camus famously compared the plight of the man trapped in a seemingly meaningless universe to the mythical Sisyphus, doomed to roll the same rock up a mountain over and over for all eternity. The only palatable choice is to recognize the absurdity and continue the struggle anyway.

All Sisyphus’ silent joy is contained therein. His fate belongs to him. His rock is his thing. Likewise, the absurd man, when he contemplates his torment, silences all the idols. In the universe suddenly restored to its silence, the myriad wondering little voices of the earth rise up. Unconscious, secret calls, invitations from all the faces, they are the necessary reverse and price of victory. There is no sun without shadow, and it is essential to know the night. The absurd man says yes and his effort will henceforth be unceasing. If there is a personal fate, there is no higher destiny, or at least there is but one which he concludes is inevitable and despicable. For the rest, he knows himself to be the master of his days. At that subtle moment when man glances backward over his life, Sisyphus returning toward his rock, in that slight pivoting he contemplates that series of unrelated actions which becomes his fate, created by him, combined under his memory’s eye and soon sealed by his death. Thus, convinced of the wholly human origin of all that is human, a blind man eager to see who knows that the night has no end, he is still on the go. The rock is still rolling. 

I leave Sisyphus at the foot of the mountain! One always finds one’s burden again. But Sisyphus teaches the higher fidelity that negates the gods and raises rocks. He too concludes that all is well. This universe henceforth without a master seems to him neither sterile nor futile. Each atom of that stone, each mineral flake of that night-filled mountain, in itself forms a world. The struggle itself toward the heights is enough to fill a mans heart. One must imagine Sisyphus happy. 

Perhaps the Jedi penchant for retreating into exile when confronted with the futility of eradicating the Dark Side, only to re-emerge and continue the struggle by training a new generation, is indicative of a long reflection culminating in the realization of the absurd. Each must fail and learn the lesson anew.

While Leia toils with the conviction her foe can be toppled and Han returns to his meaningless diversion, smuggling, ("the only thing I was ever any good at"), Luke has apparently returned to the site of the original Jedi temple for reasons not yet clear. Has he realized the value of pushing his rock up the mountain, even knowing it will just fall to the bottom again, in time to train Rey? Will he return to raising rocks?

Because we know--and reflecting on the events after the "happy ending" of Return of the Jedi only drives the painful point home--that the Dark Side can only be temporarily defeated. And because the Light and Dark Sides of the force are inexorably entangled with the political fate of the galaxy, that means the Wars can never really end. Surely Luke's failure with his nephew has given him clarity on this point. (Contra the title of Episode IV, "[The absurd man] knows simply that in that alert awareness there is no further place for hope," as Camus put it.)

Now the question is where the franchise goes next (somewhere new? can it?) to engage us in the struggle anew.

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.