Myth Busters #7: Business Coalitions on Health

As part of my Myth Busters series, I have been going through a lot of old articles in Health Affairs and other journals. It’s enough to make a fellow cry — really.

My series has focused on the big initiatives that have failed over the past forty years, but there have also been a whole lot of smaller efforts that have been equally futile.

My example today is from an article written by Health Affairs editor John Iglehart and M.D. Egdahl in 1983, “Health Cost Management at the Community Level: Doctors, Hospitals and Industry.” It is based on a “conference on health cost management held at Boston University’s Health Policy Institute.”

Like many such articles this one is full of promises by well-meaning people who have convinced themselves and others that with the right incentives and the right management skills everything can be put right in health care. It is the original “Hope and Change” campaign. There could hardly have been a more stellar cast of participants. I will list them at the end of this post to emphasize the point.

The premise of the conference was based on a whole new idea — health care coalitions made up of representatives of business, labor, hospital administrators, and health plans. These coalitions (it was thought) would create a new era of efficient management and accountability at the community level. The article notes that:

The Robert Wood Johnson Foundation created a new program last year that will invest some $16 million in community-based projects that seek to implement innovations intended to moderate the cost of medical care. The Pew Memorial Trust of Philadelphia and the John A. Hartford Foundation of New York City also are investing significant amounts of their philanthropic funds in locally sponsored projects that seek to improve the existing delivery system through private means rather than government action.

The conference looked especially at efforts in Rochester, New York (global budgets for hospitals), and New Jersey (an early DRG payment system), but also at smaller programs in Tennessee, Delaware, and Alabama.

I won’t go into detailed descriptions of the programs other than to say all were based on the Roemer’s Law idea that greedy doctors needlessly hospitalize innocent patients, either to enrich themselves or because they are lazy. It was thought that effective management of physicians by bureaucrats and business executives would curtail these practices. The article quotes, for instance, Don Bradley, president of the Morristown (NJ) hospital as saying that the state’s DRG program is more than just a payment system:

It is a medical management system, too. . . . At long last now, I have got something to talk to a physician about in terms of his rate of consumption for a similar procedure compared to one of the members of his peer group.

Right, but of course the time Mr. Bradley (and dozens of others) spend lecturing physicians is time spent away from actually caring for patients.

Already, when this article was written, there were questions about how effective any of this would be. The authors write:

Although there is little evidence to date that local physicians have markedly altered the ways they practice, the fact that the hospital in which they work can keep savings from efficiency provides the basis for ongoing dialogue between hospital management and the medical staff.

The authors add:

The complexity of the nation’s health system is such that, even if a widespread decrease in average length-of-stay were to be achieved, there is no guarantee of savings without some shrinkage of the hospital system.

And illustrating how Roemer’s Law has poisoned the discussion:

…if patients who would not have been hospitalized fill the empty beds freed up as a result of greater physician efficiency, overall health costs may increase….

Once again, there is an assumption that there are endless ranks of patients lined up just eager to enter the first hospital with an empty bed as soon as a greedy doctor gives them permission.

Nearly 30 years later, after tens of millions of dollars from foundations and the active participation of top executives of Fortune 100 companies what is there to show for all this effort? I suspect it cost the health care system far more than it saved, and decreased efficiency as more time was spent on bureaucracy and less on patient care. All because the underlying premise was wrong — greedy doctors are not needlessly filling hospital beds to enrich themselves.

Monday Morning Quarterbacking is easy. In any enterprise we can look back on what has happened and talk about how it could have happened better. Obviously not every hospitalization will turn out to be appropriate, but we don’t always know that ahead of time.

And some doctors are jerks. So are some Fortune 100 executives, hospital administrators, and health care economists. So what? I would wager that as a group physicians are more ethical and more caring than most other professions. If they over treat their patients, it is out of an abundance of caution rather than greed. When you have someone’s life in your hands, you want to do everything possible to save them. This is a good thing.

Given the record of massive, epic failure from the “health policy community,” I would much prefer to put my fate in the hands of any physician randomly found in the phone book than any of these bureaucrats.

Here is the promised list of conference participants:

  • Robert Ambrose, M.D., Medical Director, Morristown Memorial Hospital, Morristown, New Jersey;
  • John L. Bauer, Jr., Supervisor, Insurance Benefits, Armco Corporation, Middletown, Ohio;
  • Martin Bael, Director, Corporate Employee Benefits, Eastman Kodak Company, Rochester, New York;
  • Robert N. Beck, Executive Vice-President, Bank of America, San Francisco, California;
  • Don Bradley, President, Morristown Memorial Hospital, Morristown, New Jersey;
  • Leo P. Brideau, Deputy Director, Patient Care Services, Strong Memorial Hospital, Rochester, New York;
  • Anthony Cucuzzella, M.D., Chief, Physical Medicine and Rehabilitation Section, Wilmington Medical Center, Wilmington, Delaware;
  • William Deans, Manager, Health Care Benefits Section, E.I. DuPont de Nemours Company, Wilmington, Delaware;
  • Patricia Drury, Assistant Director for Health Care Financing, John A. Hartford Foundation, New York, New York;
  • Richard H. Egdahl, M.D., Director, Center for Industry and Health Care, Boston University, Boston, Massachusetts;
  • Peter D. Fox, Ph.D., Principal, Lewin and Associates, Washington, D.C.;
  • Harry S. Glass, Director, Programs in Health Utilization Management, Center for Industry and Health Care, Boston, Massachusetts;
  • Willis B. Goldbeck, Director, Washington Business Group on Health, Washington, D.C.,
  • Jerome H. Grossman, M.D., President, New England Medical Center, Boston, Massachusetts;
  • C. Rollins Hanlon, M.D., Director, American College of Surgeons, Chicago, Illinois;
  • James G. Harding, President, Wilmington Medical Center, Wilmington, Delaware;
  • James A. Hathaway, M.D., Director, Medical Affairs, Allied Chemical Company, Morristown New Jersey;
  • John Iglehart, Editor, Health Affairs, Project HOPE, Millwood, Virginia;
  • Colin L. Kamperman, M.D., Medical Director, Aluminum Company of America, Alcoa, Tennessee;
  • J. Joel May, Executive Director, New Jersey Hospital Research and Educational Trust, Princeton, New Jersey;
  • Allston J. Morris, M. D., Vice-President, Medical Affairs, Wilmington Medical Center, Wilmington, Delaware;
  • Peter W. Morris, M.D., Jefferson Country Medical Society, Birmingham, Alabama;
  • Henry S. Nelson, M.D., Chilhowee Medical Park, Maryville, Tennessee;
  • Warren Nestler, M.D., Vice- President, Quality Assurance, Overlook Hospital, Summit, New Jersey;
  • Jan Peter Ozga, Associate Director for Health Care, U.S. Chamber of Commerce, Washington, D.C.;
  • Arnold S. Relman, M.D., Editor, New England Journal of Medicine, Boston, Massachusetts;
  • James R. Robinson, Wilmington, Delaware;
  • Floyd M. Smith, South Central Bell, Birmingham, Alabama;
  • James S. Todd, M.D., Member, Board of Trustees, American Medical Association, Chicago, Illinois;
  • Bruce C. Vladeck, Ph.D., Assistant Vice-President, Robert Wood Johnson Foundation, Princeton, New Jersey;
  • Galen Wagner, M.D. Associate Professor of Cardiology, Director- Coronary Care, Duke University Medical Center, Durham, North Carolina;
  • Stanley S. Wallack, Director, University Health Policy Consortium, Florence Heller Graduate School, Brandeis University, Waltham, Massachusetts;
  • Diana Chapman Walsh, Director, Program Evaluation, Center for Industry and Health Care, Boston, Massachusetts;
  • Richard Wardrop, General Manager, Compensation and Benefits, Aluminum Company of America, Pittsburgh, Pennsylvania;
  • James Weadick, Associate Administrator, Blount Memorial Hospital, Maryville, Tennessee;
  • Frank E. Young, M.D., Ph.D., Dean, University of Rochester School of Medicine and Dentistry, Rochester, New York.

Comments (12)

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  1. Ken says:

    What’s truly interesting is that after all this time most of these guys have never changed their minds.

  2. Mike says:

    This is the major problem with the Health Care Policy Industry. They never will change. They package old, failed ideas into new labels-HMO > Managed Care > ACO > etc. They are not economically viable, but they never see that.
    What is needed is a revolution where patients take back control by holding the money, buying appropriate insurance and holding the health care industry to the financial constraints that a free market does. Why can’t anyone see that?

  3. Jeff says:

    Ditto Ken.

  4. Virginia says:

    I like this investigation of past ideas gone wrong. Very interesting stuff.

  5. Ron Bachman says:

    As Thomas Sowell once wrote in “Conflict of Visions” the elite (he called their world view an unconstrained vision) never look to the past for lessons to be learned. If anything did not work it was simply that those who tried were not smart enough. The current elite are so much smarter than those in the past that there is nothing to learn from the past efforts.

  6. Buster says:

    One thing I noticed about the cast of characters listed by Greg is that most are so-called stakeholders. Stakeholder is just another way of describing someone who has a conflicting stake in the outcome; but no ownership or accountability is achieving a desired outcome. The list is composed of academics, hospital executives, and representatives of employers. Oddly, the one group missing is patients – patients are the one group driving the costs up.

    When is the last time Microsoft convened a group of stakeholders to discuss problems with their cost structure or their products? What about Krogers? We use consumer products every day. How come none of these consumer products companies convene groups of stakeholders to discuss solutions? It’s because they are in a competitive environment. Manufacturers want to charge as much as the market will bear. Retailers want to capture as much of the profit as the market will bear. Consumers want to pay as little as they have to. The only interaction that matters in this market is the interaction that takes place at the cash register.

    Of course the conference failed to achieve any solutions. Costs will not be held down until hospitals compete on price. Hospitals will not compete on price until they know they will lose business for failing to do so.

  7. Christina says:

    Hunh–one of the speakers is VP of Bank of America.

    B of A can’t even run itself properly as a bank; why would anyone think they have health care expertise?

  8. Christina says:

    Buster–you make a good point.

    However, in point of fact there are some pretty important “stakeholders” missing there: Patients and the physicians providing their care.

  9. Greg Scandlen says:

    The mismatch of resources astounds me. The cost of this one conference alone in terms of the pay of the attendees, costs of travel, etc. probably could have paid the salaries of several physicians to actually care for patients for a year. Just imagine how many conferences there have been like that over the years to figure out how to manage physicians.

    Let’s fire all the policy people and invest that money into patient care instead. Then we really would have a better health care system.

  10. Jan Peter Ozga says:

    As member of the “stellar cast of participants’ of the conference referenced, I am compelled to respond. While at the US Chamber, we created the forerunner to the National Business Coalition on Health (now and independent organization directed by Andy Webber.) The purpose of the coalition of coalitions at the time was to provide information for and about private sector initiatives to manage health care costs —
    as an alternative to government intervention, e.g., price controls and other regulations.

    The article questions how effective business/ coalition were/are in this effort and implies that much money was/is being wasted. If memory serves me correctly, within about five years of the formation
    of the early coalitions, healthcare-cost inflation decreased to less than double digits for the first in nearly 20 years.

    But perhaps the biggest contribution made by business /health coalitions at that time is that they motivated providers and insurers to be more “accountable” to payers (business) — before the phrase became fashionable. For example, the South Florida Coalition was one of the first to identify the wide range in charges for the same services rendered to the same types of patients in their area, without justification.

    In retrospect, the business/coalition movement played (and continues to play) a major role in empowering purchasers as stakeholders (and if you are paying for 75 percent of the bill, that qualifies you as a “stakeholder”)to ask questions, recommend alternatives, and evaluate the quality of care. Insurers at the time were merely conduits for payment. Providers had virtually no incentive to be judicious with diagnostic tests, surgeries, and medicines. Much has changed in that regard, thanks to intervention by employers.

    “Clever” stakeholders will continue to try to game the system. This doesn’t mean that if business/health efforts at reform have not yet been totally successful, the private sector should abandon this collegial approach in favor of a totally laissez faire health care system, where market forces rule.

    Why? The reason health care remains “special” is that the cornerstone of capitalism is competition. Competition inspires innovation and helps to moderate costs But competition also results in winners and losers. Although we could survive the loss of some hospitals,doctors and insurance companies, turning patients into losers would never be acceptable in the compassionate society.

    Much like business/health coalitions, health savings accounts (HSAs) have emerged as a major force in consumer empowerment but are by no means a panacea — nor are they intended to be. So the need to find a blend of economic and humanitarian solutions to health care continues…

    We look forward to proposed solutions for The Heartland Institute and Consumers for Health Care Choices.

  11. Greg Scandlen says:

    Hey, Jan, thanks for your response. Yes employers were quite successful in holding down costs in the 1980s, along with Medicare turning to a DRG payment system. But Margaret Heckler was a bit premature when she declared “We have broken the back of the health care inflation monster,” because soon enough we were back on the exact same escalator.

    Your South Florida example raises the question of why this variation in charges wasn’t known much earlier? The fact that employers wee paying the bills for other people means they weren’t paying attention. Third party payers never pay as much attention as people do who pay their own bills. And, as you suggest that is why we need to grow the HSA concept beyond its current limits.

  12. #iammuldoon says:

    Mr. Goodman, I have been involved in the healthcare industry for more than 20 years. Recently I left my benefit consulting practice of fifteen years to join WhiteGlove Health (WHG). WhiteGlove offers an innovative population health management program which does not deal with the current system in any way. WGH empowers employers to take back control of their healthcare spend, while engaging those employees and dependents with acute and chronic care needs who are covered under the company’s medical plan.
    You see, we deliver at home or work acute and chronic care. Unlike most wellness vendors today, WGH brings valuable real-time data to its clients 365 days a year from 8am-8pm. In addition, WGH empowers its members to take back control of their health and bring all of their health information all into one place, our Employee Portal.
    I would like to visit with you or any of your readers about our approach to healthcare and that which we will all face in the coming years with the implementation of healthcare reform as well as the access issues we will all face with 35-40 million people hitting this system in 2014 and beyond