CommentaryPublication Exclusive

Be part of disruptive innovation to control costs, transform health care

Last month, the merger of two of Chicago’s largest hospital systems, Advocate Health Care and NorthShore University HealthSystem, was publicly announced. The merger creates the 11th largest nonprofit health system in the United States with more than 45,000 employees who will provide care to more than 3 million patients. The CEO of NorthShore will step aside and the CEO of Advocate will continue to rank among the highest paid CEOs of any industry — underscoring the fact that regardless of whether a system is “for profit” or “not-for-profit,” health care is truly big business focused on the principles necessary to increase top-line revenue growth.

The business world lauded the merger as not only a win for Advocate Health Care, but also one that will serve to better outcomes, create safer hospital environments, lower costs and improve access to care. However, the question remains as to what evidence-based research supports the concept that a merger of this size will accomplish these stated goals. The evidence is not so clear, and as we also know from orthopedics, conflicts of interest for CEOs can affect their conclusions.

Consolidation and integration

The Robert Wood Johnson Foundation looked at the benefits that occur with hospital mergers or consolidations for their Synthesis Project report published in 2012. The report carefully noted the difference between consolidation and integration. For a merger to have the ability to offer a better product at a better price and with better access, there has to be integration of services. Their scientific research showed that hospital mergers or consolidations are primarily driven by the concept of enhancing bargaining power with payers, or in other words, increasing the ability to make a greater profit. When hospitals merge in concentrated markets, the price increases can be dramatic, often exceeding 20%. Physician-hospital consolidation or mergers also have been routinely associated with higher health care costs.

Anthony Romeo

Anthony A. Romeo

A recent example also in the Chicago metropolitan region was the merger between Evanston-Northwestern Hospital and Highland Park Hospital. Similar claims of lower costs and efficiency of care were proposed. However, the Federal Trade Commission successfully litigated this merger, and the court found the consolidation led to higher prices, primarily through the ability to leverage their bargaining power with payers. These two “not-for-profit” hospitals demonstrated that increased market power typically leads to increased costs.

As hospital systems increase their power, so do their demands for higher payments from payers. The payer then passes the higher rates onto employers and patients. Insurance companies remain highly profitable despite rapid increases in health care costs. As a reflection of a healthy bottom line, CEOs of insurance companies continue to top the list of CEO compensation for any industry, including telecom, oil and gas executives. The added costs to the consumer continues to overwhelm them. In practical terms, it is not surprising that half of bankruptcies in the United States are driven by the inability for patients to afford their health care expenses. Patients often pay more for health insurance than they do for housing or transportation.

Mergers have mixed results

Research from the Robert Wood Johnson Foundation suggests there are mixed results with regard to improved quality of care after hospital system mergers. Some services, such as angioplasty and kidney transplants, have been associated with improved outcomes. There does not seem to be any evidence of improved quality of care or access to care for orthopedic conditions based on hospital consolidation, and some studies have shown increased morbidity and mortality rates. If the cost of care increases dramatically and yet the quality of care is not significantly different, then the overall value of care is less.

While we would like to believe the quality of care in the United States is the best in the world, numerous studies have contradicted that claim and the cost of our care is the highest of any developed country. If you analyze cost of care vs. a general health parameter, such as survivorship of 15 years, the expense in the United States is double what it would be in Canada, England, France, Germany or Japan. We currently spend more than $10,000 on health per capita in the United States, while the other countries spend less than half that amount. If you move health care delivery to a less expensive environment, the difference in value can be completely equalized.

Cost and affordability

No one can argue that our health care system is going in the right direction in terms of cost and affordability. Change and innovation are paramount to the ability to provide and afford valuable care. Currently, U.S. total national debt and unfunded obligations are more than $60 trillion dollars, with almost $40 trillion related to unfunded Medicare obligations. The U.S. gross domestic product is less than $20 trillion. These financial parameters are unsustainable for the welfare of future generations. While we can argue about the details and effectiveness of the Affordable Care Act, an effort to legislate health care changes will help reduce the debt, provide better access to care and improve the value of care.

Health care costs are now prohibitive, with a projected increase in health care expense per capita to more than $20,000 per person in the United States before 2020. This increase dramatically affects employer costs and profits, as well as employee out-of-pocket expenses. Furthermore, the added burden also affects our practices in terms of lower reimbursements and higher costs to deliver care and hire staff to manage the rules and regulations to participate in the health care delivery system. Our value is not increasing at the same rate as our expenses.

New concepts, such as bundled payments and pay-for-performance, and a movement away from a fee-for-service model, which rewards volume not value, are incentivized by new legislation and attempts at innovation. However, the financial rewards associated with hospital mergers and other powerful components of health care preserve the methods that create tremendous profits in the health care and impede improvements in value-based care.

Minor innovations in health care delivery are quickly manipulated to maximize profits and continue the growth of health care spending, which is unsustainable based on universally accepted financial parameters. The incentive to develop an accountable care organization is primarily advantageous for hospitals since they are the only institution that has the profits to create these systems. Adding the insurance function and the ability to control the distribution of the health care dollar will inevitably reveal profits equal to or greater than currently enjoyed because the primary goals are to protect the bottom line and grow top-line revenue.

Transform heath care

It is highly unlikely that true disruptive innovation is going to come from hospital corporations, insurance companies or the government. However, disruptive innovation is on its way and will come from employers, patients and physicians. Large corporations make decisions about future business sites based on the value of health care. Businesses continue to develop models of medical and surgical tourism and identify locations that provide similar outcomes for a fraction of the cost. We can expect these and other efforts to help break the leveraged relationships between hospitals and insurance companies so care be provided in the most cost-effective locations, not in high-expense and high-overhead sites, such as emergency rooms and hospital-based operating rooms.

As orthopedic surgeons, we also need to participate in a disruptive innovation to transform health care. We need to embrace the opportunities to work directly with employers to create value for the care we provide. This requires tracking outcomes to show the benefit of care, while working collaboratively to reduce costs and moving care to facilities dramatically less expensive than hospitals, such as ambulatory surgery centers. It is likely that more than 80% of all orthopedic surgical care in the United States can be provided outside of the traditional and expensive hospital setting, including primary joint replacements, spine surgeries, sports medicine procedures and distal extremity surgeries. We can help control costs by developing successful bundled payment programs, as well as value-based incentives for reimbursement.

The patient is the most important component of health care. We need to work with employers and patients to be part of the movement that shifts the paradigm away from the belief that gigantic buildings and advanced technology is the center of health care. Only the people who can afford that model will do everything they can to preserve as much of the current system as possible.

Evidence-based research and the history of using consolidations for greater market power with payers strongly suggests preservation of the status quo in terms of profits. We need to look for unique and disruptive innovations elsewhere. As orthopedic surgeons, we can vertically manage the health care for musculoskeletal conditions. We need to be a part of a disruptive innovation to develop systems that help patients and employers control costs, which means moving care out of hospitals and creating health savings accounts to lessen the reliance on traditional forms of health insurance.

Reference:

www.rwjf.org/content/dam/farm/reports/issue_briefs/2012/rwjf73261

For more information:

Anthony A. Romeo, MD, is the Chief Medical Editor of Orthopedics Today. He can be reached at Orthopedics Today, 6900 Grove Rd., Thorofare, NJ 08086; email: orthopedics@healio.com.

Disclosures: Romeo receives royalties, is on the speakers bureau and a consultant for Arthrex Inc.; does contracted research for Arthrex Inc. and DJO Surgical; receives institutional grants from AANA and MLB; and receives institutional research support from Arthrex Inc., Ossur, Smith & Nephew, ConMed Linvatec, Athletico and Miomed.

Last month, the merger of two of Chicago’s largest hospital systems, Advocate Health Care and NorthShore University HealthSystem, was publicly announced. The merger creates the 11th largest nonprofit health system in the United States with more than 45,000 employees who will provide care to more than 3 million patients. The CEO of NorthShore will step aside and the CEO of Advocate will continue to rank among the highest paid CEOs of any industry — underscoring the fact that regardless of whether a system is “for profit” or “not-for-profit,” health care is truly big business focused on the principles necessary to increase top-line revenue growth.

The business world lauded the merger as not only a win for Advocate Health Care, but also one that will serve to better outcomes, create safer hospital environments, lower costs and improve access to care. However, the question remains as to what evidence-based research supports the concept that a merger of this size will accomplish these stated goals. The evidence is not so clear, and as we also know from orthopedics, conflicts of interest for CEOs can affect their conclusions.

Consolidation and integration

The Robert Wood Johnson Foundation looked at the benefits that occur with hospital mergers or consolidations for their Synthesis Project report published in 2012. The report carefully noted the difference between consolidation and integration. For a merger to have the ability to offer a better product at a better price and with better access, there has to be integration of services. Their scientific research showed that hospital mergers or consolidations are primarily driven by the concept of enhancing bargaining power with payers, or in other words, increasing the ability to make a greater profit. When hospitals merge in concentrated markets, the price increases can be dramatic, often exceeding 20%. Physician-hospital consolidation or mergers also have been routinely associated with higher health care costs.

Anthony Romeo

Anthony A. Romeo

A recent example also in the Chicago metropolitan region was the merger between Evanston-Northwestern Hospital and Highland Park Hospital. Similar claims of lower costs and efficiency of care were proposed. However, the Federal Trade Commission successfully litigated this merger, and the court found the consolidation led to higher prices, primarily through the ability to leverage their bargaining power with payers. These two “not-for-profit” hospitals demonstrated that increased market power typically leads to increased costs.

As hospital systems increase their power, so do their demands for higher payments from payers. The payer then passes the higher rates onto employers and patients. Insurance companies remain highly profitable despite rapid increases in health care costs. As a reflection of a healthy bottom line, CEOs of insurance companies continue to top the list of CEO compensation for any industry, including telecom, oil and gas executives. The added costs to the consumer continues to overwhelm them. In practical terms, it is not surprising that half of bankruptcies in the United States are driven by the inability for patients to afford their health care expenses. Patients often pay more for health insurance than they do for housing or transportation.

Mergers have mixed results

Research from the Robert Wood Johnson Foundation suggests there are mixed results with regard to improved quality of care after hospital system mergers. Some services, such as angioplasty and kidney transplants, have been associated with improved outcomes. There does not seem to be any evidence of improved quality of care or access to care for orthopedic conditions based on hospital consolidation, and some studies have shown increased morbidity and mortality rates. If the cost of care increases dramatically and yet the quality of care is not significantly different, then the overall value of care is less.

While we would like to believe the quality of care in the United States is the best in the world, numerous studies have contradicted that claim and the cost of our care is the highest of any developed country. If you analyze cost of care vs. a general health parameter, such as survivorship of 15 years, the expense in the United States is double what it would be in Canada, England, France, Germany or Japan. We currently spend more than $10,000 on health per capita in the United States, while the other countries spend less than half that amount. If you move health care delivery to a less expensive environment, the difference in value can be completely equalized.

Cost and affordability

No one can argue that our health care system is going in the right direction in terms of cost and affordability. Change and innovation are paramount to the ability to provide and afford valuable care. Currently, U.S. total national debt and unfunded obligations are more than $60 trillion dollars, with almost $40 trillion related to unfunded Medicare obligations. The U.S. gross domestic product is less than $20 trillion. These financial parameters are unsustainable for the welfare of future generations. While we can argue about the details and effectiveness of the Affordable Care Act, an effort to legislate health care changes will help reduce the debt, provide better access to care and improve the value of care.

Health care costs are now prohibitive, with a projected increase in health care expense per capita to more than $20,000 per person in the United States before 2020. This increase dramatically affects employer costs and profits, as well as employee out-of-pocket expenses. Furthermore, the added burden also affects our practices in terms of lower reimbursements and higher costs to deliver care and hire staff to manage the rules and regulations to participate in the health care delivery system. Our value is not increasing at the same rate as our expenses.

PAGE BREAK

New concepts, such as bundled payments and pay-for-performance, and a movement away from a fee-for-service model, which rewards volume not value, are incentivized by new legislation and attempts at innovation. However, the financial rewards associated with hospital mergers and other powerful components of health care preserve the methods that create tremendous profits in the health care and impede improvements in value-based care.

Minor innovations in health care delivery are quickly manipulated to maximize profits and continue the growth of health care spending, which is unsustainable based on universally accepted financial parameters. The incentive to develop an accountable care organization is primarily advantageous for hospitals since they are the only institution that has the profits to create these systems. Adding the insurance function and the ability to control the distribution of the health care dollar will inevitably reveal profits equal to or greater than currently enjoyed because the primary goals are to protect the bottom line and grow top-line revenue.

Transform heath care

It is highly unlikely that true disruptive innovation is going to come from hospital corporations, insurance companies or the government. However, disruptive innovation is on its way and will come from employers, patients and physicians. Large corporations make decisions about future business sites based on the value of health care. Businesses continue to develop models of medical and surgical tourism and identify locations that provide similar outcomes for a fraction of the cost. We can expect these and other efforts to help break the leveraged relationships between hospitals and insurance companies so care be provided in the most cost-effective locations, not in high-expense and high-overhead sites, such as emergency rooms and hospital-based operating rooms.

As orthopedic surgeons, we also need to participate in a disruptive innovation to transform health care. We need to embrace the opportunities to work directly with employers to create value for the care we provide. This requires tracking outcomes to show the benefit of care, while working collaboratively to reduce costs and moving care to facilities dramatically less expensive than hospitals, such as ambulatory surgery centers. It is likely that more than 80% of all orthopedic surgical care in the United States can be provided outside of the traditional and expensive hospital setting, including primary joint replacements, spine surgeries, sports medicine procedures and distal extremity surgeries. We can help control costs by developing successful bundled payment programs, as well as value-based incentives for reimbursement.

The patient is the most important component of health care. We need to work with employers and patients to be part of the movement that shifts the paradigm away from the belief that gigantic buildings and advanced technology is the center of health care. Only the people who can afford that model will do everything they can to preserve as much of the current system as possible.

Evidence-based research and the history of using consolidations for greater market power with payers strongly suggests preservation of the status quo in terms of profits. We need to look for unique and disruptive innovations elsewhere. As orthopedic surgeons, we can vertically manage the health care for musculoskeletal conditions. We need to be a part of a disruptive innovation to develop systems that help patients and employers control costs, which means moving care out of hospitals and creating health savings accounts to lessen the reliance on traditional forms of health insurance.

Reference:

www.rwjf.org/content/dam/farm/reports/issue_briefs/2012/rwjf73261

For more information:

Anthony A. Romeo, MD, is the Chief Medical Editor of Orthopedics Today. He can be reached at Orthopedics Today, 6900 Grove Rd., Thorofare, NJ 08086; email: orthopedics@healio.com.

Disclosures: Romeo receives royalties, is on the speakers bureau and a consultant for Arthrex Inc.; does contracted research for Arthrex Inc. and DJO Surgical; receives institutional grants from AANA and MLB; and receives institutional research support from Arthrex Inc., Ossur, Smith & Nephew, ConMed Linvatec, Athletico and Miomed.