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Building Healthcare Empires for the Past

Novgorod after Ivan In healthcare, we are building empires for the past.

Merger and acquisition consolidation of healthcare delivery is an extremely questionable value solution. It fails to achieve better health at lower cost, and we know this. But, we keep gobbling up each other with imperialistic vigor.

In a recent Robert Wood Johnson Foundation article, the authors conclude: Physician-hospital consolidation has not led to either improved quality or reduced costs.

Joe Mott, vice president of population health management at Intermountain Healthcare states in a Modern Healthcare Op-EdConsolidation may be a necessary condition, but it is certainly not sufficient to drive the needed changes in the industry

What is our fundamental goal: 1) Create a competitive business which takes advantage of human suffering or, 2) Create health, high quality, and lower healthcare costs for those who purchase care? They are not mutually exclusive goals. We should chase after one as our principle purpose, and bring the other along as a means to an end. The critical goal determines the final strategy and tactics.

Because we know that M&A consolidation alone does automatically achieve the publically stated goals – that is improving the health of the population, improving the experience of care (including quality), and lowering the per capita cost – it begs the question about the real motivation behind this insatiable desire for each other. Interestingly, with the recent rash of acquisitions, the Federal Trade Commission is asking the same kinds of questions.

M&A enthusiasm may not be about improving care or lowering cost. Behind closed doors, in a conversation between healthcare leaders, it is more likely about creating or maintaining market power, wielding our size at the negotiating table with payors and suppliers, and in some cases, finally gaining control over those unwieldy physicians. An opinion piece from Deloitte reads:

Consolidation through merger and acquisition increases market clout. It is anti-competitive, giving the merged entity a larger share of the market…Private sector consolidation leading to oligopolies or monopolies result in the opposite of what markets are supposed to bring us. They result in lower quality and higher costs

These moves are defensive. A means of holding onto the past and squeezing the fee-for-service turnip for all its worth. All the other kinds of answers and explanations are for public consumption or the regulators. Shame on us.

We have a serious National problem. Our health care costs are ridiculous. Our overall outcomes are, for all practical purposes, relatively poor. If we do not deal with this constructively, we will lead this country over a fiscal cliff. We know all this too.

To achieve the Triple Aim, we need more integration, not more acquisition. M&A consolidation of the delivery system does not automatically create the kind of integrated care delivery system that is required.  It can be a distraction, consuming valuable time and resources as organizations try to merge different cultures, eliminate duplicative overhead, and recreate a shared vision and mission for the new organization. We delude ourselves if we believe that it is a necessary condition.

The healthcare delivery system cannot own every element of the community that influences health, experience (including quality), and cost. The social determinants of health have far greater influence on the Triple Aim than healthcare delivery systems. The size of the healthcare system does not solve the problem. The kind of health care system and how it partners is where the difference is made. We’re not going to own the employers, the school systems, the health departments, or the all the other pieces of the community care continuum where health care is delivered. Only through partnerships, collaboration, and alliances, will any health care delivery system be part of achieving real integration. The path to achieving the Triple Aim is through alliances, not acquisitions.

 

To achieve the Triple Aim what we must have are accountable communities for health, not larger healthcare systems. These are by their very nature alliances. Size is not a precondition for achieving this. In fact, mergers and acquisitions may very well be a distraction, consuming scarce and valuable resources, time, energy, and attention that could be better deployed towards creating the kinds of community relationships, collaboration, and alliances necessary for improving health.

Massive organizations are an impediment to achieving this kind of collaborative local community-centric environment. The sheer size, attendant hubris, centralized decision-making, and economic power of regional or national healthcare corporations impede equitable partnerships at the community table. These large delivery-side corporations tend to want to do things their way, with their resources, their data systems, and under the construct of their centralized ‘standardization.’ They have limited ability to deviate from their norm, to adapt to the local environment, to innovate around the local context, allowing for rational entrepreneurial variation under the guidance and decision making of their local leaders. The other potential partners at the community table are disinclined to acquiesce to that kind of inflexibility.

In health care, we have a love affair with the 20th-century. We are building large hierarchical corporate entities, which are a legacy of the industrial revolution, managed predominately by theory conceived at the turn of the century, and mastered in the mid-twentieth century.

That playbook is for a different age, where ruthless efficiency and unyielding standardization were paramount. These legacy corporate structures were designed to endure like granite. The pace of change was slow. We had time to think. Strategic plans played out over years. We do not live there anymore.

The 21st-century is a world of constant and excruciatingly rapid change. Communication is at the speed of light. Resilience is more important than brutal efficiency. Adaptability is more important than structured standardization. Semi-autonomous teams, collaborative alliances, and partnerships are the hallmark of the best organizations. Entrepreneurial enterprises, the Uber-fication of everything, direct-to-consumer business models, are the environment of success. These kinds of entities and mindsets are the fruit of the most likely to succeed and thrive as we sprint into the future.

This looks nothing like what the healthcare industry is building today. No, we are building empires for the past.

Further Reading:

Author: Michael Hein, MD

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