Wednesday, May 16, 2007

Hospitals and Physicians - General Hospitals in Transition from Dominance to Innovation

From Who Killed Health Care? America's $2 Trillion Medical Problem- And The Consumer-Driven Cure (McGraw-Hill, 2007)

I have some experience with hospitals. As a pathologist, I've worked inside of them. As the chairman of a PHO, I helped develop 150 "bundled bills" -- a combined hospital and physician fees -- to achieve "tranparency" for health plans and consumers. As a co-owner of an outpatient "commercial" clinical laboratory, I've competed with hospitals(Among other tests, we charged $6 for an SMA-12 while the hospital was charging $75. I was told this was necessary for "cross-subsidization" purposes to support money-losing hospital services.) And with a former hospital CEO, James Hawkins, I co-authored Sailing the Seven "Cs" of Hospital Physician Relationships: Competence, Convenience, Clairty, Continuity, Contro, Cash, and Competition (Practice Support Resources, 2006).

None of this makes me an expert on general hospitals, but as a consequence of these experiences, I read Regina Herzlinger's chapter on general hospitals with rapt attention.

Regina's message is: America's 5200 general hospitals had better move to innovate if they are thrive in a consumer-driven environment.

No longer can general hospitals sustain their dominance, if,

1. their costs continue to grow at a an 8% to 9% annual pace;

2. their costs exceed costs of general hospitals in other developed countries as much as 4 to 1 and in underdeveloped countries attracting medical tourists by as much as 10 to 1;

3. "adverse events" continue to occur on their premises, 400,000 times a year, marking them as dangerous places full of safety hazards;

4.they continue to consolidate with rivals to maintain their monopolies, further driving up costs by extracting fees from insurers who have no where else to go;

5. they persistently charge "outrageous" fees to the uninsured, thereby making a mockery of their "charitable," "not-fro-profit" and "church-affiliated" or "doing the work of the Lord" status;

6. block the building of physician-owned and/or operated specialty hospitals through heavy lobbying of Congress;

7. employ salaried doctors or setting up "centers of excellence" in the name of economies of scale or vertical integration, when in actuality they are more inefficient and less productive than their competitors.

8. Act in their own financial seelf-interest rather than the interest of consumers.

According to Herzlinger, these tactics, successful so far, will not work indefinitely because general hospital costs, already comprising about half of all health costs, will continue to rise. Her reasoning? Monopolies without competition will ultimately run afoul of federal anti-competitive laws, lawyers like Dickie Scruggs will stripe hospitals in some states of their charitable status. monoplies are inerently economically inefficient, consumers spending their own money will siimply get their care elsewhere.

Herzlinger argues general hospitals must see the clouds on the horizon and act to innovate, much like America's retail industry has done, by,

1. introducing more and more diverse consumer shopping sites for care;

2. stressing services and convenience to miminize time and travel expenses;

3. offering more choices of services and re-organizing them into more convenient care categories;

4. ceasing trying to be everything for everybody and subspecializing;

5. allowing more competition which will come anyway and will not be denied;

6. focusing on consumer needs that are more relevant and fit consumer needs, not the needs of the hospital;

7. offering integrated services for diabetes, cancer, AIDS, heart, lung, and bad backs.

8. giving physicians more latitude, control, and share of profits

9.becoming more transparent in pricing by offering upfront "bundled bills" for a range of services in advance.

10. moving to meet the threat posed by global competitors, who have already made many of the managerial innovations indicated above.

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