American healthcare is about power

Healthpolity will use insight gained after nearly a decade on the inside to explain to people on the outside what's going on - and what really matters in healthcare

The dream of reason did not take power into account.

So begins Paul Starr’s magisterial chronicle, The Social Transformation of American Medicine. The book won the 1984 Pulitzer Prize for Nonfiction, and it is fascinating historical reading. But Starr’s assertion about reason and power is as good a guide for understanding U.S. healthcare today as it was then.

For the past four years, I have had a front-row seat to the consolidation of U.S. healthcare. In 2015, as Marketing Director for a small, Maryland-based physicians group, I was there when the company decided to merge with a much larger Ohio-based company in order to form a national group with a national brand.

That new company was called US Acute Care Solutions, and I became Director of Content Marketing. My job was to talk with everyone from the senior physician leaders down to our newest recruits about every aspect of the company: its quality programs, its recruiting strategies, its operations, its strategies for growth, its competitive positioning in the market - everything. I wrote the company’s case studies, drafted its ads and brochures, explained its programs to the outside world, ghostwrote articles for its senior clinicians, and in general learned more about the business of acute care than I ever thought I would know.

Through 2016, the company went on a massive buying spree. It partnered with a private equity firm called Welsh, Carson, Anderson, & Stowe (WCAS) to begin acquiring other acute care groups, nearly quintupling in size in the space of 18 months, growing very big, very fast.

At each new company gathering, the USACS CEO at the time would show a bar graph on a slide that represented consolidation in the market. All the acute care groups were listed there, from the ones with most contracts on the left to the small ones with just a handful on the right. And at each new gathering, the number of groups on the right-hand side of the slide would dwindle further and further as the ones on the left-hand side - USACS included - continued to get bigger and bigger.

When I first got in to healthcare almost a decade ago, it was refreshing in its complexity. Since leaving journalism, I had been banging my head against the wall at various climate organizations, with the full knowledge that the problem was known, and the solution was known, but that no one seemed to be capable of doing anything about it. Working in climate change was incredibly frustrating.

Healthcare, in contrast, had thousands of individual problems, both the causes of which and the solutions for which were not only complicated but in dispute. Anyone who claims they know all the answers is selling snake oil, and the people working within the industry often have the most myopic view of the big picture. They are prone to making the mistake of thinking that healthcare as a whole is how it looks from their small section of it. But the industry that is 18 percent of the U.S. economy is simply too big and too complex for even its practitioners to fully appreciate. There was and is wisdom in specializing, but there is little incentive to step back and look at the whole.

I learned that in healthcare, nearly all the issues are thorny in their nature and fraught with unintended consequences in their solutions. As I watched the market consolidate, I at least began to understand one big thing about healthcare.

The Answer to Many Questions in Healthcare is “Power”

Why was the industry consolidating?

A few weeks after MEP Health joined USACS, I helped MEP’s CEO, Dr. Angelo Falcone, draft a blog post about the decision. It was titled, “Clinician Groups: Amid Widespread Healthcare Consolidation, What Are Your Choices?” and it began thus:

It’s been described as “a cyclical arms race,” as well as a Game of Thrones-style struggle for dominance over the healthcare kingdom. Whatever you call it, the widespread consolidation of health insurers on the one side and hospitals and health systems on the other leaves clinician groups with a difficult choice to make. They can grow organically by winning new business, hang a for sale sign in the window and hope for the best or join with other like-minded groups who share their values.

Our team has chosen the latter.

That, in short, is why physicians groups in every specialty (not just ours) were consolidating. Health insurers got big so that they had more market leverage against hospitals and health systems, effectively demanding that hospitals take the reimbursement rates they were offering or suffer the loss of their patients. Hospitals and health systems, meanwhile, got bigger so they could demand higher reimbursement from insurers, or suffer the wrath of their patients not being able to obtain care at their facilities.

See? Game of Thrones.

Physicians groups are the third kingdom in the struggle for power. They too needed to get bigger for the same reasons hospitals and healthcare organizations did: so that insurers wouldn’t be able to push them around on reimbursement negotiations. Otherwise, they risked going out of business.

So, why all the consolidation? Power.

As it turns out, that is the answer to a myriad of questions in healthcare. Why, for example, do hospitals in the same city, serving the same patients, often charge dramatically different prices for the exact same procedures?

Because power. One of those hospitals was able to charge more because of its negotiating power and market position. The other, not as much. The range of charges has little, if anything, to do with what the procedure actually costs.

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