ST. LOUIS, MO: Barnes-Jewish Hospital on May 8, 2020 (AP Photo/Jeff Roberson)
A frightening trend is accelerating across the U.S. healthcare delivery landscape. Health systems continue to join forces to weather the economic storms pressuring the industry–exacerbating downward reimbursement and the fallout from financial losses resulting from the Covid-19 pandemic. Scaling up, a dynamic that emerged with increased intensity after passage of the Affordable Care Act, has continued to be a rallying cry for industry executives as the mechanism to enable the delivery of “world-class” care in the face of market pressures. Unfortunately, ’scaling up’ has historically failed to deliver on the promise of better care at lower cost to patients. Despite this, industry executives continue to make this case in defense of consolidation.
Recently, Midwest nonprofits BJC Healthcare and Saint Luke’s Health System announced they are eyeing a massive $10 billion merger. Public statements describe their goal to create “a patient-centric integrated health care system advancing emerging and innovative models of care,” that will “…enhance the quality, access to, and affordability of patient care, while improving health and reducing health disparities in the communities they serve.” These lofty statements come on the heels of Kaiser Permanente’s plans to acquire Geisinger Health–which has been billed as “an innovative move designed to improve the health of communities, achieve better health care outcomes, and improve health care affordability.”
Promises of a new day in healthcare delivery make great press releases. But given the size and revenue of these institutions (e.g., BJC Healthcare: 30,000 employees/$6.3 B revenue) it raises the question of what consolidation can achieve that such an already large system can’t achieve on its own.
Unfortunately, these large, complex organizations are too often siloed and bureaucratic. Increased size too often means they spend precious time and resources dealing with the minutiae and dysfunction associated with more bureaucracy. As that happens, attending to the needs of the patient-consumer fades further into the background. Of the approximately 6,000 U.S. hospitals, only 1,500 still operate independently. Additionally, close to 75% of our nation’s physicians are employed by health systems or other corporate entities, in part a by-product of shrinking reimbursement and overwhelming administrative burden. These trends have caused many physicians to abandon independent and small group practices and run for cover to the ‘safe’ haven and stable paychecks these organizations promise.
Other physicians have headed for the exit doors altogether, a subject I covered at length in a recent column. As consolidation continues, we are moving towards an oligopoly–in which a handful of provider organizations, with immense leverage, will be responsible for delivering care to patients across a wide swath of the country. Given their history of defense of the status quo–that’s concerning.
As I covered at length in my book, Bringing Value to Healthcare, hospitals were never meant to be destinations of choice. They are not in the healthcare business. They are in the sickness business. Efforts to improve quality or prevent unnecessary utilization of diagnostics have not been rewarded. Instead, doctors have been paid to diagnose and treat illness.
Not surprisingly, healthcare delivery organizations have fought tooth and nail to defend a broken payment model, even when they know it no longer serves their customers. They are not interested in reporting on transparency in either the cost or quality associated with the services they offer—despite mandates requiring them to do so. And they fail to make an economic and clinical value argument to justify why someone should come to their facility for treatment. In the case of too many nonprofits, they have strayed far off course from their intended mission and purpose–all at patients’ expense. It is for these reasons that consumers will pay a high price for an industry that seems committed to getting bulkier.
Study after study shows that hospital consolidation does not lower prices or improve the quality of patient care despite the headlines. We also know that the union of two institutions with operational shortcomings only creates one larger institution with more operational shortcomings. Bringing organizations together successfully is hard work. And, the larger an organization becomes, the more it struggles to adapt to increased incursions, like the ones we see today in primary care delivery from the likes of Walmart, CVS Health and Amazon.
But with all the shortcomings and danger that consolidation brings operationally, it begs an ominous question. Is Big Health Care becoming too big to fail?
During Covid, the federal government allocated $175 billion to help healthcare providers, including hospitals, weather the worst of the pandemic, and as The Wall Street Journal found, billions of that aid “enriched some well-off systems.” But one of the most painful lessons hospitals learned during this crisis was that fee-for-service suddenly became a risky business proposition when the cancellation of lucrative elective procedures decimated their balance sheets. At some level, the financial hemorrhaging was avoidable, if they had adopted a different business model based on capitation and health maintenance. All of this conjures up eerie memories of the 2008 banking crisis, when hundreds of billions of dollars were spent to bail out “too big to fail” banks in order to stabilize the nation’s financial system.
As many hospitals and mega health systems continue to struggle financially, there will no doubt continue to be a strong appetite in Washington for Congress to come rushing in to rescue them from malfeasance. Michael Abrams, Managing Partner of Numerof & Associates predicted a decade ago in a presentation at Saint Louis University that “hospitals will have gotten too big to fail and too big to care.” He later opined: “can the government let them [hospitals on the verge of bankruptcy] fail … and leave us to treat our ills with herbal tea? Certainly not!” Dr. Marty Makary of Johns Hopkins University has also echoed similar sentiments.
This leads to the second ominous question: Is Big Health Care also becoming too big to care?
A look at one of the most long-overdue and basic reforms undertaken by the Centers for Medicare and Medicaid Services (CMS) in 2021 offers an answer to the question. CMS required hospitals to publicly post their prices for 300 “shoppable services” that a healthcare consumer can schedule in advance. The goal was simple: increase transparency, a key ingredient of getting to a market-based model. But as I explained, these and other CMS reforms have been met with fierce resistance at every turn from industry lobby groups that are more interested in maintaining the status quo and helping their clients stay afloat within it. Today, only about 25% of hospitals are fully compliant with the price transparency law and the agency has only fined four hospitals to date for noncompliance.
At a recent congressional hearing on health care price transparency, House Ways and Means Chairman U.S. Representative Jason Smith (R-MO) hit the nail on the head: “we can get more information about a local restaurant from Yelp than you can get about your local hospital from CMS.”
Consolidation in healthcare is here to stay, but this does not bode well for the more than 50% of Americans who have taken a dismal view of healthcare quality. It also does not bode well for the 73% of U.S. adults who say the healthcare system “is not meeting their needs in some way,” with affordability (61%) and is too focused on profit (40%) cited as the top barriers to healthcare access. As we get sicker as a nation, healthcare also gets more expensive, and life expectancy diminishes compared to other developed countries.
The warning signs are scattered everywhere. The road ahead is treacherous, and time is fast running out to take a detour in pursuit of a more patient-centric model. As the saying goes, “old habits die hard.” Given where things are headed, betting on healthcare delivery organizations that are too big to fail and maybe too big to care, is a costly gamble.