Recently I took a cab from the Dallas airport to a downtown hotel. During the ride, I inquired of my driver what he thought of Uber. That was a mistake. I got a detailed and thorough analysis of everything he thought was wrong with the Uber concept and why it could not possibly last. His argument included that the drivers were not licensed, they did not have to pass any sort of test about the geography of the city, and that they did not carry adequate insurance. This contrasted with everything I’d heard from many friends that Uber is the best thing that has happened to intra-city travel. The experts refer to this replacement of one standard of service with another as disintermediation, or as Time Magazine calls it, cutting out the middle man. A recent article in Time explains that this is exactly what Donald Trump has done to the slate of senators and governors seeking the Republication nomination for president. Bernie Sanders has essentially performed the same parlor trick on the Democratic side. In their appeal directly to the voters, they have cut out their respective party’s power structure.
Here is my question: Is today’s hospital a Donald Trump or Bernie Sanders or a traditional politician? If they are the latter, is there a Trump/Sanders or a disintermediator in their future? After all, the former governors in Ohio, Texas, New Jersey and Florida had outstanding track records. By all reports they were fine governors. They all have policy positions on both domestic and foreign affairs, and are thoughtful proponents of their positions. And, on the other side, a relatively unknown senator from a small state is proving unexpectedly competitive against a former first lady, senator and secretary of state. Traditional experience, in short, apparently counts for little in this election.
When I mentioned this concept of disintermediation to my wife, and my musing over whether there was a Trump-like or Sanders-like person or movement in the hospital’s future, her response was, “Oh, you mean like doctor-owned surgery centers?” After pausing for a moment to reflect, I had to admit that maybe she was right. Like the current governor candidates, typical American hospitals do many things right. They care for the poor, often creating huge bad debts for the organizations. They educate medical professionals. They are open 24 hours a day and are sources of great refuge every time there is a major manmade or natural calamity. All those activities often create huge debts for the organization that are reflected in their cost structure. Compare that to a physician-owned surgery center. The cost of care of the poor is nonexistent; in fact, relatively few Medicaid patients ever gain admission. There’s no overhead for the education of medical professionals, and service is limited to typical business hours. Because of their limited cost structure, they are able to offer surgeon fees, anesthesia fees and facility fees for low-risk, high-margin surgical services at a fraction of what hospitals charge. This makes them tremendously appealing to many employers looking to save money on employee health insurance. So, like traditional politicians, hospitals complain vigorously that cost comparisons aren’t fair. But you know what? In many cases, the payer simply doesn’t care, just as the electorate apparently couldn’t care less about politicians spending a lifetime preparing for the presidency.
Recently I had the opportunity to attend the annual convention of the Free Market Medical Association. Yes, indeed, there is such an entity. And surprise! The association’s members really don’t like hospitals. They are absolutely convinced that if the free market was allowed to exercise its power and discretion, their version of health care would predominate and hospitals would be relegated to the back waters of American health care. In other words, they are the new Donald Trump or Bernie Sanders. It should be remembered that hospitals’ demise has been predicted before. If you visit your local medical library you might look for an old copy of Hospitals circa 1990. In it you would probably find articles that forecast the future of health care is all on the payer side. The prediction was that there will be tremendous effort given over to keeping patients out of hospitals and the future is in outpatient care, particularly those services driven by medical entrepreneurs. Hospital beds will become commodities to be bought and sold on the spot market. Now, however, 25 years later, it seems that hospitals have only gotten stronger despite these prognostications of doom.
As a result of the Affordable Care Act and its emphasis on accountable care organizations, we are once again hearing the same siren song. It is back to the future. The demise of hospitals as the key player in the delivery of medical services is again being promoted. Indeed, current literature is full of stories that sound eerily like those of the 1990s. So, how have we prepared for this new future of paying for quality, not quantity, and of assuming the risk for the overall care of a population?
Closer examination of current literature does reveal significant stories about how the really smart hospital organizations are preparing for this future. However, if we are to peel back the layers and look at where hospitals are currently spending their money, it appears many are still making money the old-fashioned way. If our operating and capital budgets are really indicators of where our heart is, what can we learn from these documents? It appears that many of the old standards are currently still very viable. Our budgets tell us we are still employing doctors, and we’re still emphasizing technology (note here that in city after city our advertising seems to center around high level technologies like cyberknife and proton centers). Alongside articles in these magazines about the transformation to population health there remains significant commentary concerning remodeling and new construction of inpatient facilities and the merger mania to get even bigger.
To be fair, hints that many leading hospital systems are trying to get ready for the disintermediators do exist. For instance, programs such as care coordination to address frequent users and abusers of hospital emergency departments, efforts to tie homebound testing to individual patient records and significant conversation about risk-taking models indicate advanced thinking. While these initiatives are indeed important, they are viewed as at least in conflict with our desire to get ever bigger and ever more sophisticated inpatient facilities.
It’s clear that the Affordable Care Act, while bringing coverage to millions for the first time, may play a role in this apparent conflict that the hospital sector is experiencing. There is tension between the need to reshape our hospital organizations and the desire to conduct business as usual. For instance, we have 16 states refusing to adopt Medicaid expansion called for in the ACA. Poor people caught in the gap between Medicaid eligibility and qualifying for subsidies continue to use hospitals as their last resort. The ACA’s requirement for enhanced benefits has led to significant health premium increases and the emergence of high deductible plans. This essentially ensures that families with enormous deductibles are uninsured. The sense is that larger, more traditional organizations can better withstand this financial tension.
The ACA also has stimulated a consolidation of the insurance industry, which, in turn, encourages hospital organizations to merge in order to maintain co-equal footing. This dual threat of insurance consolidation and increasing numbers of patients with high deductibles has led hospitals to be a bit schizophrenic. The conundrum for hospital leaders: Grow so as to better face the new insurance conglomerates or be lean and flexible to prepare for the new disintermediators? Do hospitals stay the course and remain reliable and dependable, like many of today’s presidential aspirants? Will that leave hospitals vulnerable to competitors or movements that could be successful in cutting them out of the health care pie?
In other words, is there a Donald Trump or Bernie Sanders in their future?
Stanley F. Hupfeld is a Senior Consultant, INTEGRIS Health.