AANS Neurosurgeon | Volume 28, Number 4, 2019


Counterpoint: Super-sizing Health Care and Large System Flaws

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In 1708, the East India Company merged with its competitor to maintain a monopoly in trade. Since then, mergers and acquisitions have primarily served industry in maintaining its competitive advantage and profits. Today, medicine is undergoing a radical transformation through aggressive mergers and acquisitions; the result is super-sized health care delivery systems. 2015 was dubbed the year of “merger mania” including the establishment of new entities that crossed traditional health care delivery silos. Not only are hospitals and physician groups combining, they are blending, and provider-insurer collaborations are being created (such as the Aetna-Texas Health Resources collaboration). These have been affectionately dubbed “clinically integrated delivery systems.” Pundits have predicted that within a decade, there may be fewer than 100 such systems providing most inpatient and outpatient care. The purported motivations for these changes include cost reduction, standardization of quality and improved patient access.

Specific tactics of industry mergers and acquisitions include:

  • Bolstered negotiation power, useful in dealing with a united and somewhat assertive insurance industry;
  • Economic efficiency from both infrastructure scale and purchasing power;
  • The ability to create a “brand” that can be promoted over a larger area, possibly even nationally; and
  • The creation of a physician-created entity that is large enough to take on risk liability.

The real driver may parallel those of 1708 (East India Company) and The Great Merger Movement (1895-1905) achieving little realized cost reduction and a less competitive marketplace. These motivations drive growth through a strategy that establishes a health system enterprise of size, strength and with a self-sustaining future. The impact of this on both physicians and patients may prove destructive.

The New York City metropolitan area has witnessed rampant health-care consolidation over the past few years with few hospitals and medical groups remaining independent. Elucidating this experience may prove useful for others experiencing similar trends and if not, will still provide an opportunity to vent frustrations about many maddening aspects of the process.

No doubt, there are likely some positive results of these behemoth health systems, but I leave others to extol those virtues. Serious reflection on this process allows serious issues that must be elucidated:

  • Change in ownership and management will not overcome fundamental weaknesses in a struggling hospital.
  • Integration of a merged entity requires consummate leadership and considerable allocation of time and resources.
  • Often, a significant cultural transformation will be required to realize optimal return on investment.
  • Super-sized systems become self-determining entities of “standard of care” even without any evidence of benefit in outcome or quality.
  • Failure of any of these factors will result in the failure to deliver the stated goals of quality, access and cost containment while still allowing for empire building (monopolies or something close).

Overcoming Fundamental Component Weaknesses
Executives of large systems have proven their ability to rise high as administrators and thus feel their teams have superior skills. They rationalize that applying such talent to a failing hospital will be sufficient for transformation. As stated by Jim Caldas, CEO of Putnam Hospital Center:

“This thinking often inhibits the quality of assessment, objectivity and real-world stress testing of the business plan/feasibility study that serves as the basis for acquisition. The planning process ignores the operating specifics and market demand analysis of this failing hospital. There is a belief that scale and effective management will prevail over the local market forces, trends and relationships at work.”

image 1An early example of a monumental failure like this was the collapse New York’s Catholic Health System that included the closing of St. Vincent’s Medical Center (now luxury condominiums and townhouses). The burdens created by taking on struggling Catholic hospitals in other boroughs resulted in a catastrophic financial burden to this iconic landmark (think 9-11 as just one example). Arrogance of leadership was a crucial factor in this colossal failure that had widespread impact on patient access to care.

Consummate Leadership and Resources
In this frenzied melee, there is the potential that acquisitions may not occur in a strategic, stepwise or planned fashion. A hospital in financial crisis may look for an urgent systems takeover. Conversely, a system may feel compelled to attain a component because of perceived competition or possible lost opportunity. In either scenario, considerable vulnerability exists if the system management and leadership team lack the capacity for an additional challenge along with maintaining existing strategic initiatives. What often ensues is failure to engage the physicians as well as the existing management team thus realizing little or no benefit to either the system or the newly subservient entity. As with Catholic Health System, expectations are dashed and patients become the unwitting and primary losers in this poorly played strategic chess match.

Cultural Transformation
The course of health-care mergers has evolved over time. Two decades ago, hospitals established loose collaborations, creating a minimalist “holding company.” This single entity provided corporate services, such as managed care contracting, finance, marketing and strategic planning, while allowing the hospitals to operate independently. Shared overhead was the primary aim of these creations. For a number of years, such systems delivered the benefits of negotiating strength and economies of scale, while preserving the unique personalities of local facilities.

Many if not all of these “holding company” models have dissolved and have been replaced by truly integrated systems with clinical and operational elements throughout to bring uniformity to goals and standards. It has been suggested that such highly integrated systems would have a greater capacity to provide value-based care based on real evidenced-based data. 

The Advisory Board has pushed this agenda hard with considerable influence over an overwhelming majority of hospital administrators. However, the complexity of this process was undersold along with the challenges of implementation. In addition, many areas of health-care delivery have little data that can drive truly best practices (see below). 

Real integration of physicians or multi-specialty physician practices creates yet another level of complexity and challenges. Physicians have a long-standing history of professional autonomy that is not always synergistic with the structure of clinically integrated delivery systems. Failure of leadership teams to approach this transition with a respect and appreciation of the history and culture of the merged entity and its physicians has led to significant conflict. Integration of physicians in the early stages seemed promising, but as the trend has accelerated, doctors have increasingly been treated more like traditional employees than professionals who are the real engine that drive patient care, and thus, the business of all healthcare systems. Ironically, hospitals and practices that did well in the fee-for-service era face increased challenges in enacting great change to meet the new demands. In such instances, past success and satisfaction become barriers to the requirements for change.

Multiple strategies for engaging leaders and staff in the pursuit of elevated performance in service to patients and the community will be required. True system integration must be achieved for cost reduction to be a sustainable reality as 70 to 75 percent of costs relate to clinical services and not supply chain/resource/administrative management. Comprehension of the significant time, energy and investment required to insure physician collaboration and systems conversion to succeed is fundamental to integration and progress of these system.

Super-sized Systems and “Standards of Care”
The converse of appropriate, thoughtful integration as considered to this point is the capricious implementation of standards of care that in fact not only have no scientific basis but also have no proven efficacy. When such policies become mandatory across a large health care system, the enforced change can become a source of friction. Even more concerning, however, is that once a large system adopts any such policy, it has a high likelihood of then being promoted by others (groups such as The Advisory Board) as “best practices.” In little time, this viral spread of policy is then denoted as a requirement, perpetuated at face value.  This can both escalate costs and diminishing patient quality outcomes if the adopted policies are in fact conflicting with true “best practices.”

A clear example I have witnessed of this relates to Operating Room (OR) surgical personnel attire. Already, system-wide regulations have been imposed that contradict local hospital protocols. On investigation into many of these requirements, (examples: the need to wear socks regardless of shoes worn and the requirement of those not sterile during an operation to wear long sleeve garments at all times) no literature supports these as impacting infection rates or any aspect of surgical outcomes. These do, however, seriously aggravate OR personnel in whom compliance is sought. Recently, I was stunned when a community hospital affiliated with a large system initiated verbatim regulations recently implemented at another hospital linked to a competing system. Similar regulation could soon be mandated in ICUs, ERs, medical/surgical units and more.  Consistency may have some inherent merit and required adherence to proven principles (i.e. hand washing) is essential; however, propagation of erroneous policy can harm our patients and impact morale.

Integrated clinical delivery systems continue to evolve through mergers and acquisitions. The days of freestanding hospitals, individual/small group practices, significant choice in health insurers as well as respect for the boundaries of the traditional silos in the health-care world (doctor, hospital, insurer) are rapidly coming to a close. To date, there has been little realization of the promised benefits to curbing rising costs, enhancing patient access or advancing quality. Despite this, monopolies are rising as they have in other industries.

As a physician, I hope the newly-minted clinically integrated delivery systems can deliver on their promise. Taking one step more, they have the potential to return a considerable proportion of health-care dollars to clinical services and health-care providers while ratcheting back the skyrocketing proportion currently dispersed for administrative costs. Given my experiences to date, I remain skeptical that the emerging large and powerful conglomerates being created in the name of health care will keep our patients’ best interest at the core of their mission and vision. If they don’t, I hope patients will join with physicians in rejecting any failed systems. 

Additional Reading

Modern Healthcare

Healthcare Financing News


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