From the American Hospital Association Weekly, 9/15/09

If you’re thoughtful, if you’re thinking about how health care in the United States actually works; if you’ve been following the bouncing ball here about why it costs so much for such mediocre results, you’re thinking: Integrate. Get the docs and the hospitals playing on the same team. Align the incentives.

If you’ve ever tried any version of this patchwork, Rube-Goldberg-style, bee-corralling exercise, you’re thinking, “Good luck with that.”

Acres of print in Health Affairs; the entire suite of studies from Dartmouth’s Institute for Health Policy and Clinical Practice; Porter and Teisberg’s Redefining Healthcare from 2006; Christensen, Grossman and Hwang’s The Innovator’s Prescription, just out; “The Cost Conundrum,” Atul Gawande’s justly famous article in the June 1 New Yorker; the writings of Regina Herzlinger, Elliot Fisher, Don Berwick, John Wennberg, Karen Davis and a host of other thoughtful analysts—all have somewhat differing prescriptions for fixing the mess we are in.

But all these sources, and my examination of systems across the country, and countless discussions with health care executives and economists, make it abundantly clear that the answer (or answers) lie in the direction of some kind of integration. The organizations in U.S. health care that seem to work best, that provide the highest quality health care at the most reasonable cost—the organizations that continually pop up as examples in the current debate, such as Pennsylvania’s Geisinger, with its warranties; Intermountain Health; Kaiser Permanente; the Mayo Clinic; and the Cleveland Clinic—all have some form of integration.

The Integrated Care Model

Here’s a fact I find astonishing: The least expensive place in the nation for a patient to be treated over the last two years of life? Mayo. Almost as inexpensive: Cleveland Clinic. The most expensive places, like UCLA Medical Center, Cedars-Sinai in Los Angeles and New York University Medical Center in Manhattan, cost twice as much. The difference is clearly not quality of care. The one consistent difference is some type of integrated care model.

As Peter Orszag, now head of Obama’s Office of Management and Budget, put it when he ran the Congressional Budget Office last year, “How can the best medical care in the world cost twice as much as the best medical care in the world?”

The short answer is that the economics of non-integrated, fee-for-service medicine run counter to the expectations of classic economics in one crucial respect: Supply pushes demand. Patients in the high-spending areas are not getting charged more per service; they are getting more services—more visits to specialists, more time in the ICU, more tests, more images—with no better results.

Going Mayo

Whatever the unfolding details of health care reform, the coming years are going to see ever-increasing pressure for health care organizations to produce real value, measurable results for every dollar spent.

And yet: How do you get there from here? You don’t get this Mayo in gallon jars at Costco. Kaiser and Seattle’s Group Health Cooperative are both more than 60 years old, formed in their early years in a crucible that saw their doctors kicked out of medical societies, called “Communists,” and forced to fight for their medical licenses all the way to the Supreme Court, for the “crime” of practicing group medicine. Intermountain has come together over decades, guided in part by the communitarian philosophy of the Mormons.

The Mayo Clinic is a century old, its integration the product of the fierce and consistent philosophy of the Mayo brothers driving a very special culture—patient-centered, physician-centered, built on teamwork. The nearly century-old Geisinger Health System was built by Dr. Harold Foss, fresh from 20 months as chief assistant to Dr. William Mayo, and guided by the same philosophy. The 88-year-old Cleveland Clinic was also founded on the Mayo model, by doctors who had worked together as a team in the army in the Great War.

In many markets across the country, health care institutions are hiring physicians by the boatload, because many physicians are desperate to find a way to make a living, and many health care institutions are desperate to rationalize their patient flow. But a hired physician is not an integrated physician.

And a hired physician is often not a productive physician. More than one health care CEO I have talked to has used the phrase “dead men walking” to describe hired physicians, usually older physicians with long-established work habits, suddenly released from decades of having to grind patients through the mill in order to make a living, now “retired on the job.” Truly integrated care runs much deeper than a paycheck. It’s a philosophy and a way of life, and not every physician is ready for it.

Lessons from Those Who’ve Tried

There is no clear roadmap to integration. GPS doesn’t work on this frequency. But we can make useful observations, drawn from the experience of CEOs who are attempting it.

Public obstacles. Integration is a legal minefield. A broad movement to integration may require changes in the Stark Laws and in HIPAA, as well as clarifying leadership from the anti-trust division of the Department of Justice. In some states, integration will need reform of Certificate of Need laws, as well as laws against the “corporate practice of medicine,” and the “emolument” of physicians by providers. Such laws tend to cast in stone traditional assumptions about the proper business model of health care institutions—assumptions that often work against the best interests of patients and citizens by limiting what institutions can do to meet their needs.

Structure and ownership. Partly for these legal reasons, the structure of integrated systems is often quite complex. Kaiser is actually three self-owned entities with interlinked exclusive contracts: the financing arm (Kaiser Foundation Health Plan), the doctors (Permanente Medical Group) and the facilities and staffing arm (Kaiser Permanente). Group Health Cooperative (an affiliate of Kaiser) is owned by its members, with an exclusive contract with its doctors, in their own Permanente Medical Group—but it includes a complex nest of other institutes, health plans and other relationships. Intermountain is similarly complex—and complexly inter-related.

For large-scale, serious change, don’t assume that the default business model, in which the health care system owns everything, is the right model. You may need some over-arching entity, or a series of inter-related entities, or joint ventures with limited scope. Even on a local or regional scale, health care is not a simple problem, and it is unlikely to yield to one big solution.

Innovation in business models. In The Innovator’s Prescription, Clayton Christensen and his co-authors make a compelling argument that what is holding health care back from true innovation is a confusion of different business models within single institutions.

Porter and Teisberg, and Herzlinger, make similar arguments: Competition does not work in health care because of a confusion of business models. Put two health care systems in direct competition, and what they do is add services that are reimbursed well enough to make money, add specialists, jack up utilization as much as possible, and avoid as much uncompensated service as possible. Done this way, competition between general hospitals and comprehensive medical systems helps drive the cost of health care up, not down.

Medicine comes in different flavors, Christensen et al. argue. Some diagnoses and some therapies have no settled pathway, and truly call for the intuition, experience and judgment of the best clinicians, ideally working in teams that bring different skill sets to bear on the same problem. Think migraines, depression, multiple sclerosis and most types of cancer. Call this “intuitive medicine.” On the other hand, there are broken bones, strep throat, type 1 diabetes, cataracts, and hip and knee replacements: conditions for which the diagnosis is certain and the clinical pathway quite clear. Call this “precision medicine.”

These two types of medicine ha
ve completely different pathways to value, so we will never be able to find that value until we separate them, each with their own business model. Intuitive medicine calls for a “solution shop” model, in which the right resources are gathered to look at your particular problem. Examples are M.D. Andersen for cancer; National Jewish in Denver for pulmonary disease, particularly asthma; the Texas Heart Institute; or the heart and vascular institute and the neurological institute of the Cleveland Clinic. Intuitive medicine must always be billed as “fee for service,” since both the level of resources needed and the outcome are unpredictable.

Precision medicine, on the other hand, calls for a “value-added process” model, much like a factory. You do one thing over and over and get really good at it. The project is well-defined, the outcomes highly expectable, the variations well managed. Such processes can be bundled into products, from diagnosis through rehab, including imaging, pharmaceuticals and counseling; and given a price tag and warranty. They can be billed on a “fee for outcome” basis, as the outcome is fairly certain. On such a targeted basis, you can get rapid improvement and lower costs.

Christensen et al. cite Ontario’s Shouldice Hospital, which does only hernia repair, as a four-day in-patient process on a country-club-style campus—and still charges 30 percent less than the U.S. CPT 49560 outpatient hernia repair reimbursement. And U.S. hernia repairs average 10 to 20 times the Shouldice’s 0.5 percent complication rate.

A New Hospital Model

Today’s general hospitals conflate these two types of medicine, with the precision medicine cross-subsidizing the more expensive intuitive medicine (and usually being conducted like intuitive medicine, with the same lack of standardization). This cross-subsidization amounts to cost confusion. Separate the two out, give each their own business and reimbursement model, and we can begin to compete on the basis of the highest value for the customer.

General hospital executives often feel that they are at war with doctor-owned specialty hospitals, which skim off the well-insured customers and do the most repeatable processes. Which actually is as it should be—except that general hospitals can do this business-model separation themselves, building a “hospital within a hospital,” for instance, for ortho (hips and knees), for hearts (bypass grafts, stents, mitral valves), for uncomplicated births. The general hospital remains available for those comparatively rare occasions when a process goes awry and slips into the realm of intuitive medicine. These precision processes can also be separated into joint ventures with physicians.

Big tent. Market dominance helps. Even substantial breadth in your market helps. Trying to regionally integrate physicians and services in a highly fractured market is a more difficult proposition. In whichever area you choose to work—an ortho JV, a micro-capped chronic care service—you need to have enough of the physicians with you to make it work. A fractured market allows the physicians more possibilities to play the market against you.

Financing. Having your own health plan helps clinical integration. A key thing to notice about Geisinger’s bundled, warrantied procedures is that they are available only through the Geisinger Health Plan. Other payers won’t go there yet. Capturing some part of the local health plan market allows you to offer bundled products, “micro-cap” products for chronic conditions and even full, Kaiser-style capitation.

Be aggressive. If your goal is true clinical integration, do not open your health plan to other providers in the area unless they work with you toward that goal. Having control of a financing mechanism that competes well regionally gives you a tool to entice other organizations into clinical integration that reaches beyond institutional walls.

One small example: In one region where I consulted recently, the number of MR and CT scans equaled 8 percent of the population per year—a huge number, it would seem. How many of these were redundant, did not need to be done? Who knows? There is no way for clinicians to share images regionally, or even between their own clinics and the hospitals where they also work.

Speed and crisis. It’s hard for anyone to change when they seem to be succeeding. And no matter what we say, no one is really “open to change.” Change makes everybody a beginner, and who wants to be a beginner again?

The current sense of crisis—the current financial crisis for everyone, the sense of crisis in health care and the looming hope of reform—makes everyone’s sense of the future more fluid, and lowers confidence in present arrangements. That sense of crisis is likely to continue for one to two years, as the financial crisis works itself out, as the sequelae of reform work themselves out, and as physicians find themselves in increasingly untenable positions. This fluidity will not last. The time to move is now.

Piecemeal works. Integration does not have to happen all at once. In fact, it probably can’t. The logical place to start is with a primary care network. The logical pool of customers to reach out for is, first, your own employees, then the employees of large employers in the area.

Partners. It would be normal in most markets to realize that there are some things that you should offer (and maybe are already offering), but that you don’t do all that well. And your customers deserve, and need, nothing less than world-class medicine. One answer to this conundrum is partnerships—affiliations, on the one hand, with world-class specialty institutions that can help you staff and run a cancer center, for instance; and on the other hand, partnerships with specialty providers in such well-defined areas as behavioral medicine, long-term care and rehab.

Story. Every Moses needs a promised land, and it’s got to have milk and honey. If you are attempting to shift your health care system to a more integrated model, you must be able to consistently create a story, to articulate a vision (a sense of where you want to go) and how it benefits everyone—the customers, the medical community, the local employers, the payers, the regulators. You must do this even if you are not sure exactly how you’re going to get there, or what all the pieces look like, or even who’s going to be in charge. Leaders are not necessarily about answers; they are at least as much about questions and challenges.

There are only a few compelling things that any business must do to survive: Get the product right. Get the price right. Get the costs down. Get the branding right. In the usual “general hospital” business model, we don’t have products, we just have menus of services. We don’t control the pricing. We can’t control the costs, because we have confused cost-accounting. And the “We do everything for everyone wonderfully” branding doesn’t help, because it doesn’t attach to anything real, any particular product, outcome or price. People don’t believe it because they can’t—there is no real meaning there for them to believe.

If we hope to thrive under the demands of the 21st century, we must adapt our business models, we must experiment, we must push and finagle and entice our organizations and our regions into entirely new relationships.