Veteran Health-Care Executives Say It Has All Been Tried Before, With Mixed Results .
From The Wall Street Journal:
As hospitals, doctors and health insurers pursue integration strategies to squeeze costs and strengthen their positions, veteran health-care executives warn that nearly all the strategies were attempted decades ago, with decidedly mixed results.
In the 1990s, hospitals bought doctor practices, merged with each other and tried taking on insurance-style risk, sometimes launching their own health plans. Then and earlier, some insurers tried similar approaches from the other side, seeking to own or control providers. Health-maintenance organizations were seen as the future of care, squeezing costs by limiting consumers' access to certain providers.
Today's efforts at integration are "déjà vu all over again," says Paul M. Wiles, chief executive of Novant Health, a 13-hospital system based in Winston-Salem, N.C. One of the system's predecessors launched an HMO insurance product in 1986, then sold it off in 2001. It held its own financially, but "we found it to be a pretty significant distraction from the core business" and a source of internal tension, Mr. Wiles says.
Indeed, many earlier deals failed because of the clashing interests involved in soldering together different businesses. HMOs and the reimbursement system known as capitation, under which doctors and hospitals often received a set allotment for patients regardless of whether they got sick, triggered a backlash from consumers who feared they were being denied access to needed care. Many hospitals lost money on their doctor-practice acquisitions because of overly rich prices and some doctors' tendency to ease up their workloads after selling out.
Humana Inc., one prominent company that combined insurance and providers, spun off its hospitals in 1993 after rival health plans steered patients to competitors.
Perhaps the most dramatic flameout was the Allegheny Health, Education, and Research Foundation. Starting in the mid-1980s, it was built from a Pittsburgh hospital into a statewide system through hospital and doctor-practice acquisitions. In 1998, AHERF, as it was called, became the U.S.'s largest health-care nonprofit bankruptcy. Its debts became unsustainable after it piled on too many money-losing assets, failed to manage the new primary-care physicians successfully, and lost money on capitated business, according to an account published in Health Affairs in 2000.
The hospitals' moves in the 1990s "did not improve quality, they did not reduce costs. In fact they increased everyone's spending," partly because some hospitals eventually used their bulked-up leverage to push for higher rates, says Lawton Robert Burns, a Wharton School professor and the AHERF history's lead author. "Nobody's showed me we're going to do it a whole lot better this time....To expect that with one piece of legislation, everyone's going to sit around the campfire and sing kumbaya, forget about it."
Of course, some integrated systems, then and now, are seen as successful. Among them: the California-based Kaiser Permanente system, Pennsylvania's Geisinger Health System and Intermountain Healthcare in Utah.
These are the examples that today's deal makers emphasize as they say they're doing things differently this time around. They point to new technology such as electronic medical records, which allow for better real-time tracking and crunching of data. Today's models are less rigid and more focused on quality of care, health care executives say. They also cite cultural shifts, including doctors' increasing disenchantment with owning their own practices.
Indeed, Humana is now stepping back into the provider business, though it's steering clear of hospitals this time. And one provider that emerged from the AHERF bankruptcy, West Penn Allegheny Health System, is being acquired by insurer Highmark Inc. "It's not like we don't understand what we are getting back into here," said Michael B. McCallister, Humana's CEO, at an investor conference. "But things have changed."
As hospitals, doctors and health insurers pursue integration strategies to squeeze costs and strengthen their positions, veteran health-care executives warn that nearly all the strategies were attempted decades ago, with decidedly mixed results.
In the 1990s, hospitals bought doctor practices, merged with each other and tried taking on insurance-style risk, sometimes launching their own health plans. Then and earlier, some insurers tried similar approaches from the other side, seeking to own or control providers. Health-maintenance organizations were seen as the future of care, squeezing costs by limiting consumers' access to certain providers.
Today's efforts at integration are "déjà vu all over again," says Paul M. Wiles, chief executive of Novant Health, a 13-hospital system based in Winston-Salem, N.C. One of the system's predecessors launched an HMO insurance product in 1986, then sold it off in 2001. It held its own financially, but "we found it to be a pretty significant distraction from the core business" and a source of internal tension, Mr. Wiles says.
Indeed, many earlier deals failed because of the clashing interests involved in soldering together different businesses. HMOs and the reimbursement system known as capitation, under which doctors and hospitals often received a set allotment for patients regardless of whether they got sick, triggered a backlash from consumers who feared they were being denied access to needed care. Many hospitals lost money on their doctor-practice acquisitions because of overly rich prices and some doctors' tendency to ease up their workloads after selling out.
Humana Inc., one prominent company that combined insurance and providers, spun off its hospitals in 1993 after rival health plans steered patients to competitors.
Perhaps the most dramatic flameout was the Allegheny Health, Education, and Research Foundation. Starting in the mid-1980s, it was built from a Pittsburgh hospital into a statewide system through hospital and doctor-practice acquisitions. In 1998, AHERF, as it was called, became the U.S.'s largest health-care nonprofit bankruptcy. Its debts became unsustainable after it piled on too many money-losing assets, failed to manage the new primary-care physicians successfully, and lost money on capitated business, according to an account published in Health Affairs in 2000.
The hospitals' moves in the 1990s "did not improve quality, they did not reduce costs. In fact they increased everyone's spending," partly because some hospitals eventually used their bulked-up leverage to push for higher rates, says Lawton Robert Burns, a Wharton School professor and the AHERF history's lead author. "Nobody's showed me we're going to do it a whole lot better this time....To expect that with one piece of legislation, everyone's going to sit around the campfire and sing kumbaya, forget about it."
Of course, some integrated systems, then and now, are seen as successful. Among them: the California-based Kaiser Permanente system, Pennsylvania's Geisinger Health System and Intermountain Healthcare in Utah.
These are the examples that today's deal makers emphasize as they say they're doing things differently this time around. They point to new technology such as electronic medical records, which allow for better real-time tracking and crunching of data. Today's models are less rigid and more focused on quality of care, health care executives say. They also cite cultural shifts, including doctors' increasing disenchantment with owning their own practices.
Indeed, Humana is now stepping back into the provider business, though it's steering clear of hospitals this time. And one provider that emerged from the AHERF bankruptcy, West Penn Allegheny Health System, is being acquired by insurer Highmark Inc. "It's not like we don't understand what we are getting back into here," said Michael B. McCallister, Humana's CEO, at an investor conference. "But things have changed."
posted by Sid Cottingham | 5:23 PM
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