Size Matters: Hospital Consolidation and Physicians

I think no virtue goes with size.

Ralph Waldo Emerson (1803-1882), The Titmouse

May 27, 2012 -   As health reform evolves,  I’ve been watching multihospital systems grow in size and power and speculating what their gigantic size means.

Here, as of 2008, were the 10 largest systems in revenue size 

1.      Veterans Administration Hospitals,   $40.7 billion

2.      Hospital Corporation of America,  $28.4 billion

3.      Ascension Health, $12.7 billion

4.      Community Health,  $10.8 billion

5.      New York Presbyterian, $8.4 billion

6.      Tenet Health, $8.3 billion

7.      Catholic Health Initiatives,  $7.8 billon

8.      Catholic Health West,  $7.6 billion

9.      Sutter Health, $6.9 billion

10.  Mayo, $6.1 billion

What strikes me about this list are that such giant systems like Kaiser, the Cleveland Clinic,  Johns Hopkins,  Duke, and Health Partners in Boston don’t even appear, and the large  number of Catholic multisystem chains.  The revenues of multihospital systems has undoubtedly grown since 2008.   In 2011, hospital  mergers and acquisitions hit an alltime high.   More than half of all hospital admissions , 60% to be precise, occur in the 200 largest hospital systems,  hospitals now own more than half of physician practices, and large hospital systems are gobbling up rural and smaller hospitals at an accelerating rate.

Reasons behind the growth are self-evident:

·         market and monopoly power to become dominant  preferred providers in geographic regions

·         administrative flexibility  in coping with reduced federal reimbursements, triming duplications, and creating hospital-physician bundled billing  organizations

·         Need to expand into outpatient markets by acquiring physician practices

·         More ability to negotiate higher payer prices, particularly from private insurers

·         More capacity to invest in  health reform demands for quality, safety and electronic systems

·          Enhanced abilities to direct referrals and to build high tech centers for imaging, cancer, heart and orthopedic centers

·         Anticipation of influx of 32 million more paying Medicaid recipients in 2014 and 78 million new baby boomer Medicare eligibles over the next 18 years.


Critics'  Worries

Critics  worry that consolidation:

·         will create monopolies that will drive up prices and costs for government and consumers;

·         will make hospital owners of physician practices the real economic masters of the health system,  rather than government or physicians and their organizations.

As Humpty Dumpty said in Through a Looking Glass, “ The  question is: which is to be the master, that’s all.”  The  new question is: In the physician world,  will hospital systems, now the dominant physician employer,  dictate and direct what physicians can do, rather than physician organizations?

For insight into what a reform-minded government thinks about this and other matters,  I will like to quote the words of Ekekial  Emanuel, MD,  who was one of President Obama’s principal physician advisors from his perch at the National Institutes of Health before his present position as the professor of medicine at the University of Pennsylvania,  as cited by David Nash, MD, head of population health at Jefferson Medical College in MedPage today.

“Initiatives launched under the Patient Protection and Affordable Care Act (ACA) of 2010 are key to the solution:

• Patient-Centered Medical Homes: The Group Health Cooperative of Puget Sound model (1,800 patients per primary care physician with nurses and pharmacists doing chronic disease management and outreach) has already achieved both clinical success and cost effectiveness (a 1.5: 1 return on investment).
• Accountable Care Organizations (ACOs) focus on value-based care delivery and payment systems: Bundled payments – a veritable "prix fixe" – forces collaboration among all providers. Sacramento (CalPERS) ACO's Acute Care Episode demonstration project (i.e., payment bundles for coronary artery bypass grafts, pacemakers, and 8 orthopedic procedures) may be the prototype for a national program.

A former Washington insider, Emanuel believes that unless the Supreme Court does something completely "wacko," the U.S. will have universal coverage (with the exception of undocumented persons and refusals).

Costs will decrease and -- with advances in interoperable electronic medical records (EMRs), comparative effectiveness research, reporting, and medical error reduction -- quality will improve.

Changes in the delivery system will serve as catalysts

Within the next 10 years, Emanuel predicts that:

1.Checklists will be used routinely for intravenous therapies and surgery

2. Electronic medical records, health-related smart phone apps will become the norm

3. Remote monitoring of metrics such as weight, blood pressure, glucose levels will facilitate the management of chronic illness.

4. Health insurance as we know it will disappear”

Not My Opinion

That is Emanuel’s opinion.  I believe the Surpreme Court may indeed do something "wacko," like strike down Obamacare.   

Emaneul  may be right on counts 2 and 3,  but not on 1 and 4. 

I do not believe you can replace clinical judgments and patient desires  with checklists. .  I do not believe Accountable Care Organizations, which are essentially government-directed  consolidation of hospitals and physicians into organizations offering bundled bills, will reduce costs, nor do I believe they will replace health insurances companies. .    That is “top-down”  centralized  command and control government thinking, and  not “bottom-up” behavior in the real world.

Tweet:   Hospitals are reacting to reform by consolidating into bigger systems, employing more doctors, and negotiating higher costs.