Atul Gawande, M.D., celebrated for his thoughtful article about the quality of care in U.S. hospitals/systems, recently wrote that “the way medical care is organized Is changing—because the way we pay for it is changing.” (Atul Gawande, “Big Med,” The New Yorker, August 13, 2013)
The goal of many large health systems, Dr. Gawande said, is to move to large-scale, production-line medicine to improve quality and lower costs. Public and private healthcare reforms have focused on linking financial rewards with clinical performance, and this means physicians and hospitals must work more closely together—getting into each other’s business—to achieve excellent, consistent results. Payment based on results is a radical shift, Dr. Gawande said, and uncomfortable for some because it means intrusion into the practice of medicine. But standardization is the goal.
“The idea is to study what the best people are doing, figure out how to standardize it, and then bring it to everyone to execute,” Dr. Gawande quoted—not from a physician or hospital executive, but from a regional manager from . . . The Cheesecake Factory. Yes, Dr. Gawande used the production process of The Cheesecake Factory, a well-known, successful restaurant chain, as the starting point for his investigation into how to improve the way medical care is organized. He noted that standardization and “scaling good ideas,” implementing good ideas quickly and widely across the medical system, have been some of the “deepest problems in medicine,” and that neither regulation nor insurance-company reviewers have been much help in producing good medicine.
New methods and, importantly, new technology (including remote ICUs with doctors and nurses trained to assist those providing hands-on care) must be part of the new delivery system, Dr. Gawande said. Command centers for ICUs—and emergency rooms and surgery centers also—may soon become state-of-the art.
All of this implies “super-regional” healthcare systems. Dr. Gawande admitted that mixed feelings about the transformation to these large systems are unavoidable. “For the changes to live up to our hopes—lower costs and better care for everyone—liberals will have to accept the growth of Big Medicine, and conservatives will have to accept the growth of strong public oversight,” he said.
[A link to Dr. Gawande’s article, “Big Med,” appears later in this blog.]
In the iProtean courses The New Healthcare Business Model and Mergers & Acquisitions, experts Ken Kaufman, Lisa Goldstein, Dan Grauman, Michael Irwin, Kit Kamholz, Jeff Bauer, Ph.D. and Anjana Patel, Esq. discuss in detail the implications of the upcoming changes to the delivery system.
Ken Kaufman, Kaufman, Hall & Associates
Consolidation tends to move at a faster pace when you’re in the midst of business model changes, so we have a business model change going on in healthcare. And that is one of the factors that is now pushing consolidation—many organizations begin to look for a partner because they can’t handle the transition from one business model to the other, and that makes perfect sense. If you’ve been in business for fifty or sixty or seventy years and you’re very accomplished under one business model, it’s not obvious to you that you’re going to be accomplished under another business model. Just think of Joe Smith who owns the steel company and then he sees this huge business model change because of low-cost steel in China and low-cost steel in India and his best feeling about how to continue his firm may be to consolidate it with another firm because he may feel that there just isn’t the talent or the cash flow necessary in order to manage his steel firm in another business model. And that, of course, is very analogous to what’s happening in hospitals.
Secondly, scale is self-reinforcing and this is very important for board members to understand. Large organizations tend to have higher cash flow. They reinvest that cash flow back into the competitive cycle and it becomes what economists call virtual circle and that is that big organizations get bigger. They get bigger cash flow. They reinvest and that causes more consolidation until the market is or the industry is completely consolidated. And we are seeing that self-reinforcing process going on in healthcare right now. In addition, large organizations tend to be more market relevant. If you’re a payer and you can pick a market, you know there are certain very large powerful organizations in that market and as a payer you can’t ignore them because if you’re going to go out to the six or seven very big industries in the area and try to sell your health plan, they’re going to say, “Is big hospital X in your plan, because all of my employees want to go to big hospital X.” And if big hospital X isn’t in your plan, then you’re going to have trouble selling it to those companies. This is true; as the organization gets bigger and bigger it gets more relevant . . .
And then finally, if we do have falling prices in healthcare, which we believe will happen, it’s going to make it very difficult for some organizations to support the fixed costs that they built up over many years. And the way you support those fixed costs is by getting per unit scale and getting larger and larger organizations that can amortize those fixed costs over more and more market share, and the less market share you have the harder it is to amortize those fixed costs. That’s another factor that’s pushing consolidation at this point in time.
Daniel Grauman, DGA Partners
A major imperative for hospitals and physicians working together . . . is for these providers who are treating patients day in and day out to have access to the right information. You need to be able to manage the care of patients and have that information at your fingertips and different providers, different doctors, the primary care physician, the cardiologist, the surgeon, the hospital, the nurses in the hospital need to have access to that information so they can make the right decisions in a timely basis. Hospitals by and large across this nation are ill prepared to handle that.
They have been investing in information technology but the reality is that hospitals and physicians are all over the place on this. There are initiatives under way. There’s the electronic medical record, the EMR that I’m sure you’ve heard about and Medicare has implemented a program to help physicians even pay for implementing EMRs in their office locations, but it needs to go beyond that. Just because the physician is capturing the information in the electronic medical record instead of the old paper chart, that information still needs to be merged with all of the other relevant information about the patient, from the hospital from the outpatient testing and the like. Hospitals and physicians, the entire provider industry is going to need to continue to invest significantly to get to the point where they have the proper IT infrastructure and the ready access to the information they need to manage the health of a population . . .
Investment in physician integration, clinical integration, and IT as the glue to bring all that together is going to need to be significant. Typically hospitals think about capital investment and capital expenditure and they’re focused on bricks and mortar, the new tower, the upgrade to the emergency room, the ambulatory care facility, and those are important. But there is no question that there will be competing demands on what is generally considered to be limits on capital by information technology . . .
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iProtean Symposium & Workshop
Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Monte Dube, Esq., Lisa Goldstein, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.
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To read Atul Gawande’s article, “Big Med,” click here.