We are all watching the continued, and seemingly rapid, consolidation of various parts of the health care industry, wondering why there is such a rush, and if and how it will work.
There is a perfect storm of several factors leading to health care consolidation, particularly in oncology, but in other areas, as well. Here are a few of the reasons:
1. Larger hospitals have been acquiring smaller hospitals for years as a way of controlling a regional market and developing a strong bargaining position for dealing with payers. Thus, very large health “systems” are becoming more and more common with 5-15 hospitals or more in their systems, counting on the efficiencies of scale to drive profit.
2. Reimbursement to physicians has been declining ever since the enactment and implementation of the Medicare Modernization Act by the Bush administration in 2003-2005. The subsequent economic downturn beginning in 2007-2008 added to the strain on budgets and the negative economic impact on health insurance benefits. The latter has led many small businesses to stop offering health insurance or forcing employees to pay a larger part of the premiums. Thus, many physicians, especially in smaller practices, have had financial difficulties severe enough for them to sell or abandon their practices or to seek employment in larger practices or in health systems.
3. Especially good targets for hospitals' acquisitions are medical oncologists, due to a quirk in the reimbursement rules for chemotherapy services. Many hospitals qualify for the 340b exemption of the Center for Medicare and Medicaid Services (CMS), which allows them substantially more favorable reimbursement rates than those for doctors in private ambulatory practices. This can mean really big bucks, depending on the number of practices acquired, which in one case I know of amounted to $10 million to $20 million a year, ad infinitum. This allows for a substantial financial “kickback” to the physicians—couched, of course, in some other more legal terminology.
4. To participate as an Accountable Care Organization (ACO) defined in the Obama health plan, which will reimburse providers at a higher rate for providing coordinated care at an attractive cost, physicians and hospitals and other services are required to work together very closely to avoid waste and excessive tests, to provide a smoother continuity of care of high quality, and to have good outcomes. This is almost impossible to accomplish with a gaggle of independent physicians in private practice, who just want to be left alone and rarely join team-oriented efforts.
5. And a last example that I have observed up close and personally is the movement of hospital systems toward a closed staff model. That is, all physicians eventually would be employed and the by-laws modified to reject applications for staff privileges to physicians who are not employees of the health system. The goal is to have a more efficient care system, more coordinated care, less costly care and, if you were paying attention, you would know that this would mean more control over doctors by the “health system.” Ideally, these models would emulate the Mayo Clinic or, heaven forefend, an integrated academic medical system (what is this world coming to?).
6. Some hospital systems are moving to emulate an academic system, usually without the major investment in high-quality laboratory research. Some are trying to do this independent of an established academic institution and others by affiliation with an academic institution. This “academic-lite” model is fraught with high barriers (see below).
These trends are not without their difficulties, and it is certain that some or many will fail. Let me count the ways.
There is a long history that ranges from tension to outright war between hospitals and doctors. Hospitals often think of docs as skilled prima donnas who they denigrate in private and coddle in public. Doctors are temperamentally independent types. That is why, at some level, they chose medicine, which fit their ambitions and personalities (at least as medicine was when they were in medical school).
At its best, this is an asset that allows them to take upon them the incredible and underappreciated responsibility for the life and future of a patient. At its worst, the strict independence leads them to become insular, egomaniacal loners who always believe they know what is best…and screw the rest of the world.
Hospital administrators, on the other hand, realize they cannot risk offending certain doctors who by their practices earn the hospital huge amounts of money; this applies especially to surgeons, laboratory pathologists, radiation oncologists, and radiologists, who order and use the technical services owned by the hospitals that are so lucrative.
They deal very little with medical hematologists-oncologists, except for bone marrow transplant physicians and those who care for patients with hematological malignancies, both of whom are the indirect sources of very high revenues for the hospital due to long inpatient stays for patients that use enormous lab and imaging resources.
Doctors whose practices largely take place in ambulatory settings are of little interest to hospital administrators, because they are money losers with the exception of two types: oncologists who prescribe chemotherapy (see 340b above) and those who do lucrative technical procedures in hospital ambulatory facilities, like colonoscopy, interventional radiology, day surgery, and the like.
Internal Hospital Clashes
Systems that have many hospitals have difficulty getting enough strong managers to fill all the slots (like many dispersed businesses). So they need to try to grow their own and hope that a few will bubble to the top in accomplishment and skills. They often get a few of those types in the system that move up the ladder to “corporate” responsibilities. That can lead to thinly disguised competition among four or five sub-top managers whose personal agendas can severely (and at times, adversely) affect their approach to the corporate vision—i.e., their main purpose is to jockey for the next big job.
Cultural Ignorance, Clashes or Disdain
The problem with many of these efforts is the lack of understanding (or acceptance) of a different culture, such as: the private practice physician culture versus employed physician culture. The gulf here is the size of the Grand Canyon: one side values the total independence of each physician in the practice of medicine, while the other requires a team approach with give-and-take and compromise.
The gulf between a community hospital culture and that of a strong academic center is just as wide. Getting community hospital administrators to understand what it takes to attract and develop a base of academically inclined physicians versus private practice physicians can be an almost insurmountable task due to their lack of experience in the differing values and objectives of such physicians.
Integrating these academically inclined physicians into even the best community health systems may be difficult or impossible or may result in ceding precedence to the values of the community physicians because they generate more clinical revenues than the academic types do.
I have personally witnessed in two different systems a destructive antagonism between doctors, which often prevents the positive progress toward better integration of care and the development of an infrastructure that efficiently binds the cancer program into a unified approach to uniformly high-quality care.
In one case, the physicians who became employees obtained concessions that gave them enormous (excessive!) authority over the cancer program. It became impossible to appoint a leader with sufficient authority to develop an efficient cancer program. In effect, they wanted their situations to remain exactly the same as it had been before being purchased by the health system. This paralyzed any progress.
In another situation, several medical oncology practices and all of their physical assets were purchased (340b had a lot to do with that). The various medical oncology groups had a long and unpleasant history with one another in the community so it became impossible to shape a unified approach to cancer care that took advantage of the varied background and skills of each. In fact, one of the groups, as was true in the example above, wanted nothing to change and to continue to operate as strictly independent, individual medical oncologists, irrespective of the fact that they were now employed by the health system that had plans for a unitary, consolidated system.
Can They Succeed?
Can these consolidations succeed? Some will and some won't, which is a safe bet under any circumstances. It is more profitable to ask: What will be required for success?
First, there must be a firm vision of a unified effort toward a clear goal by the top leaders, which they must convey forcefully and repeatedly to all.
Second, there must be no tolerance for whining by those who always have their foot on the brakes. If they are employed, even though they are not used to it, they must be brought in line.
Third, if there is an attempt to develop an academic environment either independently or by affiliation, the top leaders must become educated in what it means to be “academic,” whether it is a full-bore or a “lite” version. This is an expensive and long-term direction and the leadership should not focus only on market share or ACOs, but on the infrastructure that allows an academic aspect of their mission to flourish.
The ignorance of most if not all community hospital leaders and their trustees about academic medical personnel and necessary structures is as deep as the Pacific Ocean.
Consolidation can be a good thing for patients as well as hospitals and physicians, but unless there is an understanding of the clashing values, infrastructure needs, and time line for these various approaches, and unless these are viewed as a 10-year project, failure is likely.