The Real Healthcare Reboot

Forget the healthcare.gov fiasco. Under the radar, a far more profound change is coming to health care. Our hydra-headed system, with its thousands of disconnected doctors’ offices, is being reshaped into a dozen or so giant integrated systems that provide every type of care and sell insurance too.

Just last week, Boston-based Partners HealthCare Systems announced it would start offering insurance products while continuing to expand its extensive network of hospitals and community clinics. With revenues of $10.3 billion last year, Partners is already the largest healthcare provider in New England.[i]

Eventually, massive systems like Partners will dominate most of the country’s metropolitan regions. This shift will have a huge impact on everyone working in healthcare or its related fields. And it is coming fast. The rate of hospital acquisitions has almost doubled since the recession ended. More than 3,000 hospitals are now part of a system, and some experts believe small independent hospitals won’t be able to survive in the new landscape.[ii]

This means big changes in how the $2.7 trillion we spend on health care flows. Many more processes will become centralized, including formulary design, standards of care and health IT purchasing. The mega health systems will be tracking and evaluating everything they do, intent on getting the maximum reimbursement for their work and top value when they spend.

The integrated systems are modeled after famed institutions such as California’s Kaiser Permanente, Geisinger Health System in Pennsylvania and Minnesota’s Mayo Clinic. Such facilities are routinely praised by experts and politicians, including President Obama, for providing better care more efficiently. The idea is to coordinate the patients’ care and avoid ineffective or duplicate treatment.

Obamacare encourages this shift, in part because it opens the way to payment schemes that reward doctors for the quality of care they provide rather than how much they do. If bundled payments or pay-for-performance go forward, docs will be more on the hook for inefficiency or substandard care. These new models, thus shift some risk from players onto providers.

But whatever happens with Obamacare, there is growing consensus that our health costs are simply unsustainable.

At a whopping 17% plus of US GDP and rising, they far outstrip those of competing nations. Health costs routinely outpace inflation. As costs continued to grow, employers and insurers have tried passing more onto consumers. But that tactic can only work for so long. If people can’t afford the deductibles and co-pays, insurance isn’t much help.

The health care money pie simply can’t keep growing the way it has. To raise their profits, hospitals, insurers and many others in healthcare will start taking a piece of someone else’s profits.

The competition will be intense.

Some hospitals will go out of business, simply unable to survive in this new game. Others, such as Partners, Northern Virginia’s Innova Health Systems, and Northern California’s Sutter Health, will offer their own health plans. That move allows Sutter to “develop closer, more direct partnerships with employers and patients,” the new plan’s CEO Steve Nolte said in a press release.[iii] It gives them more data and more control, making it easier for them to make a profit by helping patients stay well and not just treating disease.

The entire stand-alone insurance industry is under threat and some have started to fight back by buying up hospital systems. Highmark, for example, acquired the five-hospital West Penn Allegheny Health System,[iv] with plans to establish one of the largest integrated delivery systems in the country.

Aetna’s CEO, meanwhile, has described his organization as a “health IT company with a insurance component.”[v] Because they have the claims data, he argues, insurance companies can figure out what a health system really needs to look like to fit a particular community’s needs. The company is already doing just that for China’s Binhai region, which aims to be that country’s Silicon Valley. Aetna will help build the infrastructure and the technology platform. It will also provide the health system planning.[vi] But they won’t be selling the insurance there.

For those of us in healthcare, these shifts create new threats and opportunities. More and more providers will be responsible for keeping costs down. So, if you’ve got a $100,000 pill that works pretty much as well as an older, much cheaper one, it may not be a big seller in the new environment. But if you’ve figured out a new way to keep patients with diabetes or heart failure out of the hospital, you may have a winner.

For patients, the implications are profound. Yes, theoretically, they should get better care in a well-coordinated system. But will it cost less? That’s unclear. Typically, hospitals raise prices after major acquisitions. Consumers will also have less choice. Consider what’s going on in the airline industry as larger airlines gobble up their smaller competitors and passengers see soaring prices and fewer flights available. This will be a significant driver for the government to play a larger role. The direction we take can be a great thing or it can head in a direction I can write about in a later piece. But all of that said, if we can build truly quality-based integrated health systems, it should be better for everyone.

Either way, doctors and patients will each have more at stake. The thousands of businesses supporting the health care system will also have to adjust. The dominos are already tumbling. The change is inevitable, so we might as well get to work innovating to help it succeed.

Now that would be a real health reboot.

[i] http://www.bostonglobe.com/business/2014/01/14/partners-promises-new-model-via-expansion-for-care/YFM4B3Dmq14mYvluAV2iHI/story.html

[ii] http://pnhp.org/blog/2013/11/12/deloittes-take-on-hospital-mergers-and-acquisitions/

[iii] http://news.sutterhealth.org/2013/06/06/sutter-health-unveils-name-of-new-health-plan/

[iv] http://online.wsj.com/news/articles/SB10001424052702303627104576413580875856442

[v] http://www.forbes.com/sites/davechase/2012/05/29/health-insurances-4-4-billion-bunker-buster-part-i/

[vi] http://www.governing.com/topics/health-human-services/gov-insurance-future-health-care-reform.html