clinical innovations, size and structure, Twenty Clinical Innovations to Build Patient-Doctor Trust: Eleventh in a Series

On Health Care Size, Scale, and Structure

This essay is overly structured for this season of the year, but here goes anyway.

The importance of size, scale, and structure of health care organizations has always fascinated me.

In The Age of Discontinuity (Harper and Row, 1968), Peter F. Drucker observed,

“Today’s society is pluralistic. Every single social task of importance today is entrusted to a large institution organized for perpetuity and run by managers. Where the assumptions that govern what we expect and see are still those of the individualistic society of eighteenth century liberal theory, the reality that governs our behavior is that of organized, indeed, over-organized, power concentrations.”

Big organizations dominate health care. Look at U.S. News and World Report’s annual list of top hospitals and specialties. Or read America’s Top Doctors. Most of the 3000 top specialists listed practice at academic medical centers. Power and prestige comes down to size, scale, and structure. Academic centers are large (over $1 billion in revenues), salary their specialists (in more than 30 different specialty departments), and have thousands of employees (5000 to 10,000 is common.)

Hospitals control care in most communities. There are 5000 hospitals in the U.S. Most have more than $10 million in revenues, are large employers, have marketing and outreach departments, and are structured hierarchies with everybody reporting to the CEO and the hospital board. Because of structure and size, hospitals have decided advantages over doctors, who often function as disorganized level democracies, with most partners having an equal say with veto power.

Big payers – Medicare and managed care plans – have the size, scale, and structure to call the tune for hospitals and doctors. CMS (Centers for Medicare and Medicaid) has the world’s fourth largest budget. CMS consumes roughly one-half of all U.S. health care spending.

The managed care industry, consisting of HMOs, PPOs, Point of Service Plans, and High Deductible Health Plans, covers nearly 200 million Americans . Blue Cross plans, which include Anthem, insure over 100 million Americans. Medicare and Medicare, covering about 95 million Americans, have size, sale, and structure of government on its side.

Managed care plans are mostly investor-driven, and usually possess a regional or nationwide corporate structure to keep in check (pun intended) hospitals and doctors. The United Health Group, a $80 billion operation, for example, has the AARP account, which the largest membership organization in America after the Catholic Church.

Everybody knows the big drug and device manufacturers are titans in Corporate America (Pfizer has revenues of $51 billion). These firms pervade every nook and cranny of the American health system. Together these manufacturers constitute the health care “supply chain,” the fastest growing segment of hospital costs, now making up 35% to 40% of hospital expenses in the form of stents, prostheses, drug formulary inventories, beds, intravenous fluids, sterilizing equipment, and countless other items required for modern care.

Everybody knows, or think they do, that large multispecialty or single specialty groups, the latter often existing as heart, lung, or eye “institutes, ” will grow and prevail in the future. After all, these physician organizations, sometimes in concert with hospitals and health systems, have size, scale, and structure to impose “enterprise-wide”, “standardized,” and “scalable” systems and solutions on physicians and suppliers. Moreover, large enterprises can demand “transparency” and “accountability.” By their very size and structure, they can employ management experts, deploy the latest technologies, and demand large discounts from suppliers.

Multispecialty clinics can work as management and clinical “teams” to bring order out of chaos. One of the more articulate spokesperson for this point of view is David Lawrence, MD, chairman emeritus for Kaiser Permanente (From Chaos to Care: The Promise of Team-Based Medicine, Perseus Publishing, 2002.)

Lawrence maintains doctors in solo of small groups simply can’t cut it when it comes to modern health care. Using the hypothetical example of a fictitious solo practitioner, Dr. Adam Landers, here is how Lawrence explains the dilemma of doctors in small practices.

“In spite of his motivations to be high-quality physicians, Dr. Landers can’t deliver on the promise of modern medical care. He lacks the time, the money, and the organization to do so. And he will fall further and further behind if he continues to practice as he does today. For the simple and routine illnesses, he provides a valuable service. But for more complex illnesses chronic conditions, neither he nor his colleagues in other solo and small group practices are prepared for what medicine now requires and patients demand. The forces are too strong and the changes too profound.”

In short, solo practitioners or those in small groups lack the size, structure, and scale to perform and compete. Well, maybe. Many of doctors in types of practices disagree. They believe they are closer to their patients, in human, neighborly, and personal terms, to deliver care patients want.

The countervailing view is that there are fewer complaints and mistakes among physicians in group practices. In Minnesota, where most doctors’ practice in large groups, Steven Altschuler, MD, President of the Minnesota Board of Medical Practice, says the reason for dropping number of complaints in Minnesota is: “We don’t practice in isolation anymore – the percentage of single-doctor practices in Minnesota is small.”

That may be, but many solo doctors feel that the Internet, and even their small size and proximity to patients, helps level the playing field between small and impersonal large groups. With the Internet and with physician websites, with links to all sorts of health care information site offering specific information on chronic and rare conditions, even small practices are part of a larger virtual world, operate on a larger scale, and create a new structures of practice.

The Web may erase the image of solo practitioners stuck in their offices – armed with nothing but a black bag, a cold stethoscope, a mirrors on their forehead, and nothing but an all-knowing good nurse Friday to assist them.

But, says Joseph Heyman, M.D., physicians who practice solo have to be on top of the latest technology to make solo practice work. Heyman, a gynecologist, runs his own practice in Amesbury, Massachusetts. where patients can ask for appointments and medications at his website. Heyman represents a breed of doctors who have left large practices, where overhead is high and autonomy is limited, to strike out on their own.

Since April 2001, he's maintained an electronic medical record and prescribed electronically. He runs a paperless office and does his own billing. With one employee, Heyman keeps costs down and makes a decent living. He also has more time to spend with patients.

Heyman and others are creating new business models and changing the structure of practice to survive and cut costs of care by minimizing administrative costs, which consume 30% to 50% of total health costs.

•Dr. Michael Stein of Homestead, New Hampshire, practices medicine with a small office, one employee (his wife), long appointments, and short waits. For $1,000 a year, patients get unlimited access to Stein and his care. Stein says by doing so, he has reduced his overhead from $350,000 to $50,000 a year.

•Dr. Robert Berry, a solo practitioner in Greenville, Tennessee, is president of the PATMOS (Payment at the Moment of Care) emergency clinics. He posts his prices in his front office, doesn’t deal with health plans, and says most of his clients are “insurance-free,” i.e, are uninsured.

•Dr. Vern Cherewatkeno, a family physician in Renton, Washington, co-founded SimpleCare, company now made up of hundreds of doctors across America dedicated to helping patients “gain control of health care payments and care.” SimpleCare charges for Short ($35), Medium ($65), and Long Visits ($95) visits. By using these three simple codes, rather than the usual 750 codes in primary care and dealing in cash only, SimpleCare claims it can cut medical costs by at least 50% for most patients.

As Drucker noted, Americans live in a pluralistic society. We still entrust most care to large organizations. But there is always room for small organizations, where consumers can find more choice and lower costs, and entrepreneurial physicians can find more satisfaction, if they are willing to change their practice structure by creating new practice models.

Merry Christmas. I won't be entering another blog until the New Year. Have a wonderful holliday. My best wishes for a prosperous and healthy New Year.

Richard L. Reece, MD