The Disruption Distraction

In 2018, Amazon’s mooted entry into healthcare, and mega-mergers between health insurers and pharmaceutical benefits management firms, unleashed yet another wave of breathless disruption forecasts by industry analysts.  The investment community has clamored after these forecasts like a herd of well-dressed cattle.   Unless a start-up company threatens in its prospectus to “disrupt” the health system, it had a limited chance to get funded. 

Healthcare is certainly not immune to disruption. Mainstream hospital-centric care delivery was massively disrupted thirty-plus years ago by ambulatory surgery, non-invasive imaging and home care.  And today, as a result, almost half of all hospital revenues are not inpatient, and large chunks of complex medicine is delivered off the hospital campus.   That disruption continues today, at a slightly less feverish pace, in joint replacement surgery.  

But in the decade since the Innovator’s Prescription appeared, and easily a decade before that, the main feature of health care provision has been an eerie, rock-steady stability, this despite tens of billions invested in “disrupting” the hospital.   Examine the portfolio of technologies that power the hospital in 2019 and what strikes you is that it is virtually identical to that of twenty years ago, 

Last Major New Imaging Platform:  PET (1993)
The Last “Got-to-Have It” Imaging Tool:  64-slice CT (1998)
Last Major Radiation Therapy Innovation- Intensity Modulated Radiation Therapy (1998)
Last Major New Surgical Technology – daVinci Robot (2000)
Last Major New Surgical Product Line – Bariatrics (late 1990’s)
Last Major Innovations in Cardiology- Stents and Coils (late 1990’s)
Last Major Logistical Breakthrough- Pyxis Unit Dose System (1995) 
Last Big Clinical Productivity Breakthrough- the eICU (2000)
Dominant IT Platforms:  EpiCare (1998), Cerner Millennium (1996)

A similar argument might be made about the physician’s business.    We have seen waves of innovative attempts to “disrupt” the 1950’s-esque physician office.  This began with the so-called concierge practice (MDVIP, which Proctor and Gamble acquired in 2007 and sold to Summit Partners in 2014), and rolled on with telehealth and subscription-based practices (TeleDoc, American Well, Iora Health, One Medical, Sherpaa, etc.), multi-specialty clinics (HealthCare Partners, now Optum Health) and store-based retail clinics like Minute Clinic (now CVS).   Hospitals appear mired in their second attempt at consolidation of the physician practice sector in two decades, with reported losses of near $200 thousand per physician, offset by increased (and expensive) hospital use.

Since so many of the physician sector start-up firms are privately held, it is impossible to know for certain how well they are doing. Optum Health appears to be generating a gusher of cashflow.  But close observers of the rest of this physician sector activity detect a shortage of reportable black ink and a continuous process of rolling up, in search of those elusive “economies of scale” and the ultimate “exit opportunity” for original investors.   Early promising entries like Las Vegas’ Turntable Health  https://zdoggmd.com/turntablehealth/ and Seattle’s Qliance both closed in 2017.

After more than a decade of hype and billions in investment, retail clinic volume appears to have crested 30 million visits nationally, compared to around 145 million hospital emergency room visits and at least a billion physician office visits. And point-of-care testing had its mega faux-disruptor, Theranos, explode in a mess of lawsuits and fraud indictments, dissolving in 2018.

In a 2006 Harvard Business Review article on why innovation in healthcare is so hard, Regina Herzlinger pointed to a complex regulatory environment, particularly the hurdles to obtaining FDA approval and insurance coverage, the power of healthcare incumbents to influence the regulatory and political process, industry fragmentation and the pivotal role of physicians in technology adoption as barriers to innovation.   To this list, I would add:  the technical complexity of the healthcare “product set”, the sheer scale of the industry, the increasing conservatism of the large corporations that control healthcare R+D and the variability and uncertainty around the clinical care process.  

The disruption meme may be the hidden culprit behind the slowing pace of start-up companies in healthcare or in the economy as a whole.   The larger and more complex the industry, the hard it is to disrupt.  Disrupting a trillion-dollar hospital or health insurance industry is simply too heavy a lift for a single firm or technology.   The Internet-related disruptions such as those instigated by Amazon, Apple and Craigslist were 1 in ten thousand events, the equivalent of a ballplayer hitting a blindfolded 500-foot home run.  Ballplayers who swing for the fences, as opposed to looking for the strategic single or double, strike out with discouraging frequency. Investor insistence that new companies should disrupt trillion dollar incumbents has led to continuing disappointment and poor returns on the part of venture and private equity investors. 

Though Christiansen belittled incremental product or service improvements as defensive “sustaining” innovations by incumbents, the sustainers have had an impressive record in healthcare.  Consider the stunning progress in joint replacement.  When I first witnessed this procedure in the late 1970’s, it was massively invasive, required a three-week hospital stay, and a six-month long recovery/rehabilitation. Hip replacement is now, unbelievably, an ambulatory procedure, as are shoulders and knees.  Some forms of heart valve replacement, interventional care for strokes, and nerve ablation procedures for arrhythmia are very short stay inpatient procedures and may be ambulatory in the near future.      

All these are clearly “sustaining”, not disruptive, innovations.  They unfolded over decades, as clinicians and their partners in industry refined or reinvented mature technologies, markedly reducing over time both cost and damage to patients.  This collaboration is unglamorous “pick and shovel” work.  It has gone out of fashion in an investment climate geared to unrealistic expectations of explosive growth.   Yet providers who work with the patient support of health systems and suppliers can markedly lower the risk and cost of formerly complex procedures, and improve their profitability along the way.  

In his enduring 1985 classic, Innovation and Entrepreneurship, Peter Drucker argued for a more multi-faceted model of innovation, basically one which pivots around removing friction or barriers between a customer and a satisfaction of their needs, but also exploiting asymmetries and discontinuities in industry structure or demography. Industries preoccupied with outsized returns often do not listen acutely enough to customers as much as to the siren song of growth.  

To me, the most objectionable aspect of the obsession with disruption is not that it set the bar too high for most innovations to meet, or diminished the importance of improving existing products or services to make them less costly or more efficient.   It is that the imperative to disrupt focused management and investor attention on the incumbent competitor, and how to dismantle their franchise, rather than tuning in to customer wants and desires and how to  meet them.  

As Drucker says, “an entrepreneurial strategy has more chance of success the more it starts out with the users- their utilities, their values, their realities . . . the test of innovation is always what it does for the user.”  Drucker’s advice is an important antidote to the disruption distraction, and the key to better returns for investors and society from healthcare innovation.  

Jeff Goldsmith writes and lectures actively on health policy, financing and technology, both in the United States and overseas.  You can learn more about his work at Healthfutures.net

28 thoughts on “The Disruption Distraction

  1. Jeff’s article is a good one to launch with. It does however, miss the elephant in the room: that US healthcare is taking 10% more of GDP than other rich economies that spend that money on education, food, environment and other social determinants of health.

    The example he gives of joint replacement reminds me of the (New Yorker or NYTimes) series on joint replacement in Belgium? vs. the US at a fraction of the price with less morbidity and less social disparity while using the same prosthetic device.

    From my perspective, Jeff’s article is exactly what’s wrong with much of medical journalism today. It’s not about muckraking, it’s just about business. We’re dealing with a corrupt, secretive, and politically dominant value chain that Christensen never considered in his books but Hertzlinger at least partially recognizes. Harvard. Walk around and you will also find Porter’s narrow focus. Zuboff, notably, seems to stay away from healthcare, because she’s closest to actually trying to be a journalist instead of an HBS pundit.

  2. Don’t pretend to understand business; don’t pretend to understand, “innovation”. Guess that is a point; moving from tape to digital, moving to streaming; moving to technologies or ideas that change everything (light bulbs, etc) seem like innovation. The internet was an innovation, and all the IT that followed was nothing more than a buck to the rut. Walk in clinics are not innovative; buying docs so you can take their money when capitation hits is not innovation. Maybe capitation is an innovation as it would change a bunch, but all the other stuff in the piece is just…. What medicine is doing is more like money chasing or machinations rather than innovations. An innovation is easy to note; the rest is just jockeying for dollars. Nice paper, but not a whit of insight in my view.

  3. First: Congratulations on getting this launched. I wish you great success, and I hope to contribute to that success.

    The article by the always astute Jeff Goldsmith is indeed an excellent article to launch with. Does his argument have holes? Is there an “elephant in the room” that he is missing, as Adrian suggests?

    Absolutely. And Jeff in fact alludes to it when he points out that “Peter Drucker argued for a more multi-faceted model of innovation, basically one which pivots around removing friction or barriers between a customer and a satisfaction of their needs, but also exploiting asymmetries and discontinuities in industry structure or demography.” Indeed.

    So we have an industry that has serious barriers and friction between the customer and their satisfaction, and astonishing asymmetries, discontinuities, and market distortions. An industry that costs twice as much as it should be any measure, in which by various estimates some 35% to 50% of all its economic activity is waste, useless to the customer, indeed in many ways damaging to the customer. An industry that is so costly, and whose excesses are so dangerous to the average consumer and voter, that the debate over how to manage it and pay for it has consumed much of the past decade of political life already, and will likely consume much of the coming decade as well. An industry in which various analyses show the majority of the cost increases cannot be laid to increased usage or even increased coverage. Most of them come from simple price increases. A rolling catastrophe of an industry that Adrian aptly describes as “corrupt, secretive, and politically dominant,” and that will need every ounce of that political dominance to thwart off attempts to bring it to heel in the coming years.

    What does this suggest? Not that we are foolish to keep looking for “disruption” in this multi-trillion-dollar industry. It suggests that we are foolish to keep looking for it in technologies or in product or service improvements, or in diversification or in consolidation in an elusive hunt for “economies of scale.” It suggests that there is a vast opportunity space in healthcare defined by changes in payment structure, and the accompanying transparency and breaking of monopolistic practices to enable true competition on price and quality. Any company or group of companies that can put together a way to provide better healthcare for less to more people will make more money than they can carry. None of today’s legacy players have any incentive to offer healthcare that costs less. Only new entrants that make their vig off serving the actual desires of real customers — consumers and big buyers of healthcare such as employers, pension plans and unions — would have the incentive to do this.

    That is why the ABC venture is being so closely watched. It is going after exactly that opportunity space. It is not a child of venture capitalists or hedge funds looking for the big strike, the 500-foot home run, but the child of several of the largest employers in America, with the deep pockets to get it rolling, the patience to let it unfold without looking for a quick exit, and the very real bottom-line incentive to get themselves out of the trap that U.S. employers are in, paying ever more in what amounts to protection money to an industry that is so extravagantly wasteful and so visibly overpriced.

    This is the space to watch, not the narrow view of “disruption” that Jeff decries.

    1. Any money on the success of ABC venture, Joseph? And a measure by which to judge it?
      (BTW, no argument on the problem statement. . . )

  4. Where Clay’s analysis and prediction have most failed is in missing the accelerated concentration in the industry, aided by EHRs that have precluded real interoperability across health systems. Thus, AMCs and other large hospitals have, through mergers and acquisitions, obtained dominant market power. Their proprietary EHRs have introduced tremendous friction into the free movement of patients, enabling closed networks to be truly closed. Claims of better health management and focus in population health are vacuous, and market power is used mainly to drive up prices and to further “feed the beast.” These are indeed cost centers in successful search of revenue streams.

  5. Wow! The big day is here and it starts with Jeff. Can’t imagine a better choice or anything even remotely close to it. Congratulations!!!

    Now to the article. I think Christensen’s dilemma and prescription were past the “sell by” date when they came off the presses, especially the prescription. Not a fan…. This entire notion of disruptive innovation is largely retrospective, in my opinion. Chasing it prospectively is pretty weird, unless we are talking about curing cancer or something similar. People do things and eventually, looking back, something turns out to have been disruptive (Zefram Cochrane was completely oblivious to what his rocket ship would unleash… :-).

    Anyway, regarding health care, it is as difficult to disrupt what has become a Medical Industrial Complex, as it is to disrupt the other infamous Industrial Complex or any other mammoth industry. They say Southwest disrupted commercial air travel. Did it though? Did it really? Air travel is horrible today and Southwest itself is almost indistinguishable from the sorry pack of monopolistic giants that care nothing about their customers. Whatever Southwest dis was short lived relatively.

    Same will be true for all the “new” models of providing lousy medical care to people who can’t afford anything better. There is no way, today, to provide better care to more people for less money. There was no way to provide *better” air travel to more people for less money when Southwest started out. There was a way to provide cheaper (not better by any stretch of the imagination) air travel to non-consumers as long as the fuel contracts lasted. And what happened next? All air travel became Southwest quality and Southwest is practically as expensive now as all other predators.

    That’s what all those innovative payment models Joe is alluding to will do if they ever catch on. The “disruption” will amount to herding poor people into a crowded, cheap service with a minuscule bag of peanuts, followed by the middle class joining the same innovative model with ever shrinking seats, while the curtain is being drawn to shield the top 20% in first class, and the 1% sticks with its private arrangements. We will be told that this is progress. Medicaid managed care, paying the same fees we pay now per head, for all.

    If we don’t want that to happen, we need to stop deluding ourselves that some Amazon-Wall Street-Hedge fund will ride to our rescue. They’re in this to make more money and ONLY to make more money. We need to address things ourselves, one doctor at a time and one patient at a time, as medical care was originally envisioned to be administered.

    Okay…. fire at will…. 🙂

  6. The cottage industry is the only model viable if we think patients matter and need to be informed. Then let them decide and we will see a sea change. Right on.

    1. And that is what’s happening in the alternative therapies space, where people for whom main stream modalities have failed or are not available gladly pay out of pocket to one and two person practices for naturopathy, acupuncture, etc. Unfortunately, the main stream has caught on to the huge following of some of those therapies and will soon begin buying up these practices and agglomerating them as well, thereby ruining them.

  7. Congratulations John and Jason on the big day! Excited to be part of the “disruption.” As to Jeff’s piece – what a great start! He is right, concentrating on the consumer/user is the key to changing healthcare in this country and lowering overall cost.

    Agree with Joe’s sentiment: “we are foolish to keep looking for it [disruption] in technologies or in product or service improvements, or in diversification or in consolidation in an elusive hunt for “economies of scale.” I have been saying this for a long time. Technology is no replacement for what I do every single day and, frankly, it never will be.

    In part, retail clinics are making it clear to consumers why having an actual trained medical doctor is so valuable. Now, patients go there, get misdiagnosed, and then have to come to my office to fix the mess created by the ‘noctor’ that is so “cheap and efficient.” 😊

    In reality, being a physician is almost like being a prostitute. Sex has been the same nuts and bolts operation since the beginning of time. Maybe you change the players, the positions and even the accessories but the basics of one person providing a service to another for a price is essentially the same.

    People pay me to help them feel better, minus any intercourse. If a physician does not listen, empathize and improve a patients’ health, then patients will not return. If a physician is darn good, well, there will be a line out the door.

    No matter how many vibrators, self stimulators, or other technological devices are developed so people can “sexually” satisfy themselves alone and thereby reduce costs, there are just some things for which people are willing to pay. Sex and healthcare are two of them.

  8. I’m at a funeral and haven’t read everything but that’s never held me back from commenting. Healthcare is and always will be about doctors. How do we create an environment where they love what they do again besides killing all the health insurers? How do we make Niran happy? Is this about recreating their work environments? Or am I simply being sentimental during a sad time?

  9. Congrats to John et al on getting this up and running. Wonderful

    Alas, I disagree with several of the sentiments expressed because I find we are tangling the several threads here. Granted they are all interwoven — but it’s our job to be slightly less confused.

    There’s the US medical-industrial economic model that is horrifically wasteful. Part of that horror is our grotesque payment system. But we should make some effort to differentiate the two. Switzerland, for example, has mixed systems run by the cantons but the insurance companies must offer identical plans…where they compete on the basis of good service.

    There’s the power of big pharma and device makers…and their overarching control of the political and economic system…. Including Platonic examples of regulatory capture.

    There’s the trillions of dollars we are spending on mandated EHRs – that are user hostile and downright dangerous. Part of their problem is the documentation requirements to meet insurance rules (both CMS and private insurance.) [note: the study of healthcare IT is my area]

    Then there’s the thread I want to address now: It’s the idea that the patient must be in charge and should take the lead in making the decisions. I argue that’s dangerous ideal. Healthcare is often (but not always) so stunningly different from other markets/purchases. Bodies are complex. Medical knowledge is always emerging…and it takes real knowledge to direct one in the right direction. Googling your symptoms is useful only some of the time…and most folk won’t know which of those times are useful vs. lethal vs diverting vs informative that requires other info to make sense.

    A la Dr. Niran S. Al-Agba’s delightful metaphor of buying the services of a hooker vs buying a doctor’s time: I assume one can evaluate the services of a hooker. But the same is seldom true of most medical encounters. We are called “patients,” not “customers.” (Although I’ll grant you some of the doc-in-a box services suggest we might be called “Johns.” Ditto for some EDs and most big pharma operations)

    Yes, yes, yes: the paternalistic model of doctor knows best was rotten, abusive, wrong-headed. But that does not mean that we now should think docs and patients are on an equal footing when it comes to figuring out what may be wrong and how to get a better understanding of the problem(s)… or what to prescribe or what treatment to recommend. I know Dx error is massive, but not going to medical school will not increase the odds of reducing it.

    Returning to my main point: There are so many threads here. They are profoundly interwoven, but we at least should think about how WE can think about them more clearly.

    Ross Koppel, Ph.D. FACMI, UNIV. OF PENNSYLVANIA
    Senior Fellow, Wharton’s Leonard Davis Institute of Healthcare Economics (Penn)
    Affil Prof of Medicine, Perelman School of Medicine; (Penn)
    Senior Fellow, Institute of Biomedical Informatics, Perelman School of Medicine (Penn)
    Prof. of Biomedical Informatics, Jacobs School of Medicine, SUNY@Buffalo
    Principal Investigator, School of Engineering and Applied Sciences (Penn)
    Senior Fellow, Center for Public Health Initiatives, Perelman Sch of Medicine (Penn)
    Adjunct Professor (full) Sociology Department (Penn)

  10. Great start, John. “The Disruption Distraction” is certainly thought provoking.

    As a physician I may not be in the position to appreciate prostitution analogy. Yes, there’s a “fee for service” aspect to both the oldest profession and medical care. (I’m not sure if the era of the capitated prostitute is in the offing. That might be a disruption…) Regardless, I think the defining element of prostitution is the sacrifice of personal morality for monetary gain. So, “fee for service” in healthcare lacks that element. One hopes.

    As regards disruption, healthcare is such a massive economic machine that disruptions are not easily recognized because they’re happening in slow motion. For a hospital, an outpatient hip replacement is disruptive. For the patient, not as much. For the surgeon focusing on the OR, no real disruption at all.

    I’m doubtful that AI or other innovations will have much impact on the basic paradigm of the one patient/one provider interaction in any approaching century. Current changes—like outpatient surgeries—are mostly cost driven marginal variations on current themes. But, like mutations in evolution, when summed up and selected out over a long time, they will probably add up to “disruption in slow motion.”

  11. Just a couple of points to Daniel’s response:

    Capitated prostitute is the traditional model of arranged marriage, or the newer 2.0 version of trophy wives.

    As to morality, I’ve met some prostitutes whose morality was clearly superior to some CEOs I know, so there is that.

    And this for Niran: They have sex robots now and guys seem very happy with those. Nobody is immune to AI…. just saying.

  12. Margalit! A delight to see you in this conversation.

    However. No, the comparison with Southwest Airlines is not apt at all. If one is given to imagining possible disruptions in any industry, you have to ask where the opportunity space is, and for whom it represents an opportunity. In air travel, the opportunity space lay in reducing operating costs (standardized air fleet, lower wage structure, better long-term fuel contracts) so as to offer the customer lower prices.

    In healthcare, that’s not the opportunity space. The opportunity space lies in
    the tremendous waste and over treatment (where waste is not “too many peanuts,” it is doing procedures and tests that are not necessary or even helpful, it is treating people for conditions that they probably don’t really have);
    outrageously high, variable, and opaque prices that have no real relation to the provider’s total cost of ownership;
    The rampant failure to extend healthcare and its huge payment systems into prevention and management of chronic, behaviorally and environmental issues whose treatment at the acute stages consumes the vast majority of our healthcare dollar
    a tortuous insurance and payment system that can easily lead to people accidentally slamming into bankruptcy even when they are trying to do the right thing; and
    the highly visible corruption and self-dealing across the system.

    Who is this an opportunity for? Not the insurers, not the healthcare provider systems. All this is, by and large, just fine for them, they just want to tweak things around the edges to make it more profitable. It is a huge opportunity for anyone who can:
    aggregate end customers into a business model that does not pay for waste (largely by paying for bundled outcomes, not fee-for-service),
    that negotiates real warrantied prospective prices,
    that funds prevention and management of chronic, behavioral, and environmental syndromes across populations (by being at risk for, and so profiting from, improvements),
    that has clear, contracted methods of payment, and
    that visibly serves the needs of its actual customers, and not some other part of the system.

    In other words, it is a huge opportunity for anyone who can represent the actual needs and desires of end customers (people who own and operate bodies) and large buyers (such as employers) for whom healthcare is an ungovernable cost.

    Yes, ABC and its owners are “only in it for the money,” but what money? Where is the profit for them? It’s not in the profitability of ABC. It’s in lowering their own employee healthcare costs. And, if they come up with ways of doing this that actually work, cutting other employers and employer groups in on the deal to lower their healthcare costs. And as Guwande clearly knows, you don’t do this in healthcare by cutting corners, giving people bargain-basement care. You do this by offering better, earlier, more comprehensive care to help them stay out of the ED and the hospital.

  13. I’m with Joe on this. For all the reasons he states, the only disruption in healthcare will come from outside. That could be patients and employers but it can also be regulators (as in Venezuela, I guess 🙂 Outside can also be medical tourism, cross-border telemedicine and telepharmacy. Any aspect of healthcare that globalizes will be disruptive. The limits to globalization will be set by regulators and the local courts (in dealing with US physicians that prescribe cross-border therapies).

  14. 😂😂….a provocative and also funny dialogue. Nice to have “the thread” back…and a new healthcare blog site. Thanks John and Jason!

    I agree Jeff’s piece is stimulating, with much truth and many sharp insights.. It strikes me that much of the disruptive innovation today is simply too gradual to warrant the name, or be compared to some of the great and relatively rapid disruptions Jeff sites for other industries/sectors of the economy.

    As such, I agree the prediction that such rapid change was about to imminently beset health care…and save us!…did not come to pass and may not be likely.

    But innovation is certainly happening…in payment, care delivery, care design, delivery system design, insurance reforms, tech, IT, etc. Not to mention medicine itself. And cultural norms / consumer behavior around accessing care are changing for sure.

    It’s just all so much slower than what many of us hoped for starting 20 years ago….and, yes, not as robust and dramatic in scope. Metaphor: giant oil tanker and turning on a dime. etc.

    Hoping the new blog is a great success.

  15. Joe, I agree with your comments and I think that the approaches for meaningful cost containment are on target. But, medical innovation, both past and present is a also a big part of the equation. For drug costs, guaranteed third party payment for any drug that can show a marginal benefit over current therapy has set up a “build it and they will pay” system that incentivizes astronomic investments that get paid off with astronomic returns that translate into increased drug costs.

    Also, improving utilization by avoiding ER visits and hospital stays, etc., helps individual plans or medical groups but it’s not really a systemic solution. Hospital costs are mostly fixed. If the participants reduce their usage of hospital days, in the end that will most likely result in compensatory increases in the charge per hospital day. In the long run we still need to pay those enormous fixed costs.

    As you suggest, there is a ton of waste and fair amount of abuse. But, probably the biggest issue driving utilization is third party payment. The marginal CT scan that can be avoided is always someone else’s. Add in the technology and t becomes the marginal MRI, the marginal PET, etc, etc.

  16. Thank you for your insights, Dr. Stone.

    Let me just point out in them, though, that you surfaced one of the hard bumpers for conversations like this, something that has been built into these conversations since forever. It is this: If we keep down the utilization of EDs and hospital beds, hospitals still have fixed costs and will have to raise their rates. You left out the rest of the sentence: “…or go bankrupt.”

    This is true of any proposal to make the system more efficient, because for decades hospitals and hospital systems have been built on the expectation of certain levels of income. In one of my books I include a fictionalized conversation between a physician and the CEO of a hospital about building a whole new cath lab, emphasizing that none of the discussion is about the medical advisability of putting in so many stents, while all of it is about throughput and reimbursement.

    This is why for the most part, hospital systems are not party to any serious discussions of reducing the costs of healthcare. They have built these revenue expectations into their entire financing structure. They have effectively saddled all of us with their debt.

    If they find themselves in a situation of actually competing on price and quality and unable to keep up with the market, that means they made a whole series of wrong decisions over the years because they failed to anticipate such market changes. They will not make the income and they will default on their bonds and go bankrupt. The assets—the buildings, the machines, the contracts with physician groups, the employee base, the goodwill—need not go away. Rather, someone else will buy the assets and find a way to use them to serve the market better.

    This is not a tragedy. This is exactly the disruption we are seeking.

    I fail to see why we as a nation should shell out ever-increasing amounts of money to shore up the finances of hospital systems that continually bet the enterprise on ever-increasing reimbursements and utilization curves, much less shore up the salaries and career trajectories of the executives who made those decisions. There are executives across the system who have bet their careers and institutions on wiser decisions to keep their costs down and base their growth projections on serving more people better. As a matter of public policy as well as business acumen, we should find ways to bet on those executives and organizations.

    This, by the way, is why you never see my byline on anything out of the American Hospital Association after writing for them and their antecedent organizations for nearly 40 years. It turns out that as of 2016 nothing published by the AHA can ever hint that hospitals need to change their financing structure, that far from continually needing more income and higher reimbursements and utilization, they need to find ways to systemically cost less. I got censored on the deep over-riding structural issue that makes U.S. hospital systems a huge factor in the rapacious costs of our current system. So I quit writing for them.

  17. I agree with Joe. Hospitals have been bullying the rest of the value chain for more than a decade. The bullying hit a new level with the HITECH act that now enabled hospitals to use consolidated EHRs and Stark Law exemptions to control group practices without even having to buy them. The sad part is that the payers and doctors went along. Money talks. Employers and patients, now hostage to a keiretsu of payers, hospitals, physicians, and regulators have no choice but to pay.

    Understanding the role of hospitals and the massive administrative overhead they have created is essential to making US a sustainable competitor in a globalized economy even if our politicians don’t care about the unfairness and disparities in our current system. Pretending that we can fix things by fiddling with drug costs, patient responsibility, wellness, and such things is just a distraction while hospitals, administrators and politicians laugh all the way to the bank.

  18. I am in the same choir as Adrian and Joe but singing a different song. Unfortunately for all of us, the US “healthcare system” is the product of a century of serial unintended consequences of good ideas. We could take advantage of all these object lessons and come up with remedies along the lines of Alain Enthoven’s IDS or relegate employer-based health insurance to the archives as Prof. Fuchs advocates. But we all know, and those that don’t would soon learn, about the entropy of the current system, an entropy that results from an enormous transfer of wealth, a heated “blame game” and layers of Federal and state legislation.

    That’s why my colleagues and I are fashioning a rational, ethical, alternative approach for one segment of the population, employees. I started down this road 25 years ago and have been traveling with increasing vigor for the past decade recruiting individuals of like mind along the way. It has occupied me nearly full-time for over 5 years. This is an approach that circumvents the current system by running through a hole in the legislated barricade that we discovered in only one state. We can start anew by designing a defined contribution, fiduciary, comprehensive benefits scheme for a large workforce anywhere in the country. Furthermore, we can design the compensation, disability and “health” components in a fashion that minimizes the likelihoods of futility and of iatrogenicity. The plan is funded with 2% of wages from each employee and a 3-fold multiple from the employer. We’ve run the numbers every way till Sunday and this should work comfortably. In fact, we estimate a substantial return-on-premium to each insured employee that is legislated to be available for purchasing supplemental health-related insurance (for the family, for example.) It’s not the promised land, but it’s a great improvement that will set a powerful precedent.

    I had published my last 5 books with UNC Press. We were discussing another book about this approach to health care when the Press came to me with an idea they thought I’d reject. They were wrong. Rather than one of my treatises, we decided to publish a booklet, almost an executive summary, titled “Promoting Worker Health. A New Approach to Employee Benefits for the Twenty-first Century”. It is live on Amazon, B&N, and the UNC Press website:

    https://www.uncpress.org/book/9781469650968/promoting-worker-health/

    Here’s the ebook link to the entire pamphlet, available to you gratis:
    https://uncpress.flexpub.com/openaccess/ozl84

    I’m also attaching an editorial in a recent issue of JOEM (It’s the Cliffs notes.) along with a recent book review. These are open access publications.

    And, finally, here’s an NPR interview I gave this fall.
    http://www.wunc.org/post/new-way-approach-health-care-and-worker-health#stream/0a

    This is my attempt to monetize altruism. It is where my prior 6 books were headed.

    It is more than a novel idea; as I mentioned it is a legislative agenda.
    But I have a window to take advantage of criticisms and would welcome such from you.
    Bring it on.

    Nortin

    NORTIN M HADLER MD MACP MACR FACOEM
    Emeritus Professor of Medicine and Microbiology/Immunology
    University of North Carolina at Chapel Hill
    https://www.med.unc.edu/tarc/people/nortin-m-hadler

  19. I don’t know of anyone who actually wanted another CT Scan or MRI. They are always physician-ordered. To moderate their use, physicians are in control. And the fear of malpractice claims is not an appropriate reason. I know that’s just an example, but…

  20. Thanks, Joe, and thanks for tackling the booklet. It’s a brief but challenging read because we had to explore and incorporate (transgress) 4 literatures which seldom cross-fertilize, let alone share vocabularies. That part is my kind of “fun.” Far less fun has been pushing this boulder up the slope. I discovered many false passages and political pitfalls. But we’re at the summit, not securely yet but I’ve never been this close before. Unfortunately, I’m not enough of a Taoist to take much comfort in the aphorism “The journey is the reward”.

  21. These are great points, Joe.

    Unfortunately, the concentration in the hospital industry means that in many communities—like mine—the institutions that are wasteful can’t go out of business as there would no capacity to provide services that are actually needed. And, any prospective buyer (if one with such massive pockets couldn’t find a better industry) would likely continue the same practices to salvage the bottom line. So, we can’t afford to live with them and we can’t live without them.

  22. Joe –

    Agree with your points and so glad to hear you are no longer stumping for the AHA, who are greedy bastards…. I agree that hospitals going bankrupt is exactly the kind of disruption we need. But here is the problem. They get absorbed by someone with more money who will go bankrupt next.

    No hospital can afford to pay for supplies, staff, physicians and then a useless CEO who gets a ridiculous sum of money (usually a few million.) It is a terrible business venture.

    For example, Harrison Memorial was started by my community in the mid-50’s. It was going bankrupt so the “Fransciscan group” took over in 2014. Then they absorbed a bunch of medical practices they couldn’t afford.

    Catholic Health Initiatives absorbed the Franciscans in 2016 at the height of hospital consolidation mania. They cut staff, supplies oh and a few dudes died in the ER while waiting to be seen. But its only a handful of dead people right? They were gonna die eventually, why not while waiting for care?

    Ok, so then they bought EVERY orthopedist, surgeon, ENT, cardiologist, urologist and oncologist that practices in an area covering a population of 250,000 people. Then the prices started to climb… ultimately by 40%!!!!! Yet the hospital is still broke somehow. The Attorney General Bob Ferguson filed a lawsuit alleging price fixing and they actually have written proof these idiots who are in “leadership” of the hospital conglomerate planning it out.

    Then CHI decided they needed a new hospital – to the tune of $689 million. It doesn’t take a genius to figure out they will never be able to finish it. I was the ONLY physician to stand up in a community of 400 and fight this stupid plan along with the hospital Union (their leadership is brilliant), the Mayor, and the City Council.

    We lost the bid to stop the closure of one hospital to build another. The bleeding has continued and two days ago, CHI announced they merged with Dignity Health to become Common Spirit Health, the largest non-profit hospital system in the country. Now with 2 CEO’s at a few million each.

    We now have an old decaying building that hasn’t been repaired, and a partially built monstrosity that no one will finish constructing. You know what we don’t have? Enough physicians or staff or supplies to save the lives of 250,000 people living in our community.

    In a few more years, that will simply be my job; the “lone ranger” doctor who hasn’t given up.

    As a pediatrician, I am overwhelmed with adults as old as 92 trying to get in to my clinic because “they trust me.” The debate on this thread seems odd because its as if the whole world is starving and you all are discussing giving everyone one single drop of water. Whether I have an EMR or some fancy technology makes no difference to patients if there is no doctor available to provide care.

    I am drowning out here. There are not enough doctors to go around.

    Someone should ask the question Jim did… why are there not enough of us anymore to care for the population of this country? And what will happen to life expectancy when there are no more of us willing to do this job?

    A two-tiered system will emerge with the wealthy getting doctors like me to care for them and the poor getting the nurse practitioner who can’t tell the difference between a “ruptured” ear drum or an ear infection (that is today’s experience.)

    Neither you, me or anyone else is going to prevent it. And that just plain sucks. We need to be looking at how to get everyone basic care and technology is not a solution. Make care more efficient not the computers. And again, AI is not going to be any better than the NP, PA, or whatever else they come up with to replace a physician.

  23. To be clear , Dr. Stone, in going through a bankruptcy (as opposed to a restructuring), the new owners would just be buying the assets. The debts would be the property of the (now defunct) hospital organization, and as such would be discharged. The bondholders would be out of luck, but the buyer of the assets would specifically not have to salvage the same bottom line.

  24. Thank you, Dr. Al-Agba, for the detailed illustration of what is unfortunately a typical story of the development of the hospital industry over the last couple of decades, accelerating into the last few years.

    The story you limn is decidedly not a story of hospital executives struggling against a sea of rising costs that they can do nothing about (the story they like to tell of themselves). It is a story of gross mismanagement and bad strategic decisions based on nothing more substantial than the assumption that they can continue to wring higher and higher prices out of the marketplace through monopolistic practices and market manipulation.

    I am sorry to say that I am no longer astonished by such stories. I am astonished by how long it took me to stop being astonished.

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