Healthcare Insights: Consolidation in Healthcare - Danger and Opportunity

Common in today’s reporting on healthcare issues is whether or not Americans receive high value for the high cost of healthcare. Value in healthcare is usually defined as to what extent cost, access, safety, quality, and patient experience lead to improved outcomes for patients. The scorecard for American healthcare has been the same for several decades: In the U.S. we pay the most for healthcare compared to any society in the world, and yet our health outcomes are the worst among other wealthy countries. In key measures of life expectancy, infant and maternal mortality, substance abuse, and depression, our nation’s state of health approaches comparison with much poorer nations. 

Concurrent with these negative trends has been the rapid increase in consolidation of health systems, their services, and the mass integration of physicians into larger and larger systems.

It is commonplace to see headlines like this: 10% of US Physicians Work for or Under UnitedHealth. Is That a Problem?

There is substantial academic and journalistic writing on this topic which largely concludes that consolidation has both increased the cost of healthcare, and only marginally or in many cases negatively impacted the quality of care.

It appears safe to say that healthcare consolidation has not produced promised benefits for patients and communities.

A salient theme of the article cited here and many similar articles explains the lofty but unrealized rationale for consolidation:

“During those years, proponents of consolidation have argued that physicians and hospitals working together in integrated, coordinated systems would not only provide better care for patients, but would do so more efficiently than independent physician practices and hospitals, driving quality of care up while holding spending steady and even driving costs down.

One of the key arguments for hospital mergers and practice acquisition was that health systems would deliver better-value care for patients. This study provides the most comprehensive evidence yet that this isn’t happening,” said study first author Nancy Beaulieu, a research associate in the Department of Health Care Policy in the Blavatnik Institute at Harvard Medical School.

Today, these systems are responsible for a large proportion of the medical care delivered in the United States. Some of them employ thousands of physicians, while others are much smaller and rooted in local communities. But questions about just how much care is delivered by such systems, or how good that care is compared with care delivered outside of systems, have lingered unanswered.” (emphasis added). 

It is clear that these trends represent danger signs that appear to be deepening.

Is there also opportunity for improvement within this trend of consolidation?

For many years, I have learned from and practiced forms of collective bargaining and organizing that are based in the sociological notion of “shared purpose in organization.” In today’s column I want to share some of the underpinnings of this experience from the seminal work of Paul Adler and Charles Heckscher from one of their many writings on this topic,“Collaboration as an Organization Design for Shared Purpose” .

I also believe that we must shift some of the foundational purposes of union organization and collective bargaining if the new trend of private sector physician interest in organizing and collective bargaining are to be large in both scale and impact. To illustrate this idea, I will discuss later how issues of physician compensation can serve as a means toward creating high value healthcare in a system that has proven for far too long that it cannot achieve that.

As the title of the Adler and Heckscher articles implies, there can be no achievement of shared purpose without collaboration. These are both highly complex subjects.

What is meant by shared purpose and collaboration?

In the context of large-scale organization, shared purpose is derived in theory from Max Weber’s notion of “value rationality.” “Value-rational social action is uniquely suited to dynamic contexts because such contexts call for the continual and rational consideration of ultimate values in charting the appropriate course of conduct in changing circumstances.” 

To achieve such value-rational social action requires collaboration, a type of dialogic interaction: “When organizations attempt to scale up value rationality, the key challenge in the values dimension is that of avoiding fragmentation. The collaborative organizational form, we submit, can meet this challenge by institutionalizing an ethic of contribution. An ethic of contribution is a shared conviction that the most important virtue is contributing to the achievement of the organization’s purpose.” 

Collective bargaining and unionization can create large scale innovation in shared purpose and collaboration.

Physician organization may be the best opportunity we have currently to experiment with and learn this dynamic of shared purpose and collaboration.

Private sector physicians have begun unionization efforts and the pace of such organizing appears to be growing. We have reported in this column on recent union victories at private sector health systems across the country, from Minnesota to Delaware to Washington State, Oregon, and Michigan.

As these newly organized groups of physicians sit down to negotiate first contracts there is an opportunity to advance the traditional narrow bargaining approach to one, that if founded on the concept of a shared vision, or value-rational social action to commit to improved quality and cost, while enhancing the morale and engagement of doctors during a period of high burnout and demoralization, needed innovation can occur.

Through early experience in collective bargaining in this new world of physician collective bargaining we are learning a great deal, especially about how physicians are compensated.

Physician compensation models tend to be based on a number of factors: productivity, usually determined by how many patients a doctor sees over the course of a shift, a set of productivity-based formulas known as Relative Value Units (RVUs), and market data which attempts to align compensation with trends in a regional or local market.

Taken together, these models encourage higher productivity which can then incentivize bonuses to improve compensation. As health systems consolidate and have more and more leverage over more and more physicians, the trend toward higher and higher productivity expectation seems to be becoming more prevalent, and in recent direct experience, unions are hearing from doctors that a chief factor in their desire to unionize is founded in their lack of voice in changing models of compensation based on productivity and market rates as opposed to quality outcomes and physician control over their practices.

In a definitive study by Rand, and published in the Journal of the American Medical Association we can see that current physician compensation models are based almost entirely on productivity and not on value-based payments as incentives.

Despite efforts by insurance companies and other payers to move toward compensating physicians based on the quality and value of care they provide, most physicians employed in group practices owned by health systems are paid primarily based on the volume of care they provide, according to a new study by RAND Corporation researchers.

Examining a wide range of medical practices owned by health systems, researchers found that volume-based compensation was the most-common type of base pay for more than 80% of primary care physicians and for more than 90% of physician specialists.

While financial incentives for quality and cost performance were commonly used by health systems, the percentage of total physician compensation based on quality and cost was modest—9% for primary care providers and 5% for specialists.

These findings are published by the journal JAMA Health Forum.

“Despite growth in value-based programs and the need to improve value in health care, physician compensation arrangements in health systems do not currently emphasize value,” said Rachel O. Reid, the study's lead author and a physician policy researcher at RAND, a nonprofit research organization. “The payment systems that are most often in place are designed to maximize health system revenue by incentivizing providers within the system to deliver more services.” (emphasis added)

Today’s physicians are expressing extreme dissatisfaction with their profession. The topic of physician compensation may be a source of controversy for all of us who are potential patients who want high quality care when we need it, but certainly hope that doctors are compensated fairly. Doctors certainly deserve to be compensated fairly in exchange for their training, experience, and expertise in healing. Young doctors are emerging from medical school with hundreds of thousands of dollars in education debt, so their incentives in compensation are driven by additional anxiety.

Let’s keep in mind this nation’s failure to align spending with high quality health outcomes and high levels of population health. Let’s also envision this national tragedy with the new opportunity that physicians are seizing to take a seat at the collective bargaining table and among other things have a powerful voice in setting the terms for their own compensation. By and large they are dissatisfied with the productivity and market driven models they are confronted with, not so much because of the amount of compensation, but the manner in which it is calculated: by volume and market pressures!

Keeping in mind the Adler and Heckscher organizational design model of defining and achieving a shared purpose through the process of collaboration, we can see how collective bargaining itself can be an engine of transformation for U.S. healthcare. Physicians and their teams of caregivers are in a very strong position to develop patient-centered models of continuous improvement in patient conditions and outcomes. That integration of care delivery that is patient-focused as opposed to volume-focused forms the basis of improvement in quality and cost. In so doing, compensation models for physicians can be aligned with insurance payment models that provide true incentives for improved outcomes for patients which is known to be at the root cause of cost reduction in healthcare. Prevention of illness and injury through focused, data-driven practice and patient education saves suffering, lives, and dollars.

Physicians have a unique power derived from their role as the central figure to diagnose and treat all patients. That is a power that can, if utilized in the context of shared purpose and collaboration, engage health systems and their payers towards value, and negotiate new compensation models that they have the power to approve or disapprove.

Expanding traditional definitions of collective bargaining to solve the root causes of conflict over wages and working conditions are more than possible when we visualize the role that physician compensation can play in the broader context of improved healthcare. Collective bargaining can stand for the aligning of incentives between patients, payers, and practitioners which is known as “accountable care.” That is a shared vision that in order to be attained requires new and exciting forms of collaboration among caregivers, among physicians themselves across specialties, among health systems and the entities who pay them.

When we remember that nearly half (45%) of payments for healthcare are government-based (Medicare and Medicaid, Active Military, Veterans, Federal Employee Insurance) it is possible to envision how collective bargaining can bring the public interest into the solution for high value healthcare. 

In fact, 96% of hospitals have 50% of their inpatient days paid by Medicare and Medicaid, and more than 82% of hospitals have 67% Medicare and Medicaid inpatient days.

We should look forward to the possibility that if even one large scale health system is organized, and the collective bargaining opportunity that follows takes the path of building a collaborative organizational model we could see new opportunities evolve. The shared vision/collaborative model of organization can transform collective bargaining practice at a time when physicians are seeking to attain a new and powerful collective voice.

There is one great successful model at least that can serve as a directional model for the kind of collective bargaining I am describing: Kaiser Permanente. Adler and Heckscher write:

“The challenge of translating purpose into daily decision-making was very salient at one healthcare organization we have studied Kaiser Permanente. Kaiser sought to overcome the values “segmentation” that is common in healthcare, where the hospital managers and insurance plan managers operate under instrumentally rational market-oriented values while the doctors rely on very different, professional values. (emphasis added) At Kaiser, managers and doctors alike were expected to consider both patient clinical outcomes and the economic consequences of clinical decisions. This represented a deep challenge to values that traditionally prevailed among doctors. Indeed, consideration of costs had long been considered unethical among doctors (Angell, 1993). To ensure that a commitment to Kaiser’s shared purpose was meaningful in doctors’ daily work, these cost/quality choices and the associated research were discussed in weekly or monthly meetings of physicians at the medical-office building level, in monthly meetings of physicians in their specialty departments, and in bimonthly off-site retreats for doctors from the entire service area. Medical departments regularly reviewed unblinded comparisons of doctors’ outcomes, in order to prompt discussion about how to mitigate any trade-offs.”

It is an exciting time to think that for the first time in our history, private sector physicians are banding together to build a collective voice. Through organization, new ideas, and successful models, it appears that innovation toward health quality improvement and physician satisfaction are quite possible to achieve.

John August is the Scheinman Institute’s Director of Healthcare and Partner Programs. His expertise in healthcare and labor relations spans 40 years. John previously served as the Executive Director of the Coalition of Kaiser Permanente Unions from April 2006 until July 2013. With revenues of 88 billion dollars and over 300,000 employees, Kaiser is one of the largest healthcare plans in the US. While serving as Executive Director of the Coalition, John was the co-chair of the Labor-Management Partnership at Kaiser Permanente, the largest, most complex, and most successful labor-management partnership in U.S. history. He also led the Coalition as chief negotiator in three successful rounds of National Bargaining in 2008, 2010, and 2012 on behalf of 100,000 members of the Coalition.