Does Carilion Need More Competition?

The Carilion Health System, headquartered in Roanoke, is betting its future on a new concept embraced by the Obama administration in the Accountable Care Act: Accountable Care Organizations (ACOs).

The idea is to shift the delivery paradigm from a fee-for-service system, which encourages excess utilization of health resources, to a paradigm that rewards Carilion for efficiently managing large populations of patients. In theory, Carilion will engage in more preventive care and will do a better job of coordinating care between hospitals and doctors, thus saving costs by reducing the number of complications and readmissions.

It’s a great theory. And it may work. As Alec MacGillis writes for the Washington Post:

To integrate care, Carilion spent $100 million on electronic medical records. Nurses provide immediate follow-up when patients are released from the hospital in an effort to prevent costly readmissions. And the clinic is turning its 37 primary-care practices toward the “medical home” model: “Care coordinators” reach out to people with diabetes, hypertension and other chronic conditions who have gone too long without a checkup; and physicians meet nightly with nurses to review the next day’s appointments to ensure the visits are productive.

Carilion’s grand experiment will bear watching. As Carilion goes, so goes the U.S. health care system under Obamacare. Carilion dominates the health care market in the Roanoke region and surrounding counties. Although it does have some competition, most notably by the HCA hospital in Salem, by any definition it owns a monopoly share of the marketplace. Which brings me to the subject of my latest post on the “Boomergeddon” blog, “Evidence from England: Competition in Health Care Works.” To quote myself in full:

When the Labour government in the United Kingdom introduced a reform in 2006 that promoted competition between state-owned hospitals, it created a the kind of social scientific experiment that economists dream of. By maintaining the same administrative pricing mechanisms for its hospitals, the National Health System (NHS) ensured that price variations would not muddy the equation. Measuring the quality of health care before and after the introduction of competition — in effect isolating a single variable — would yield answers to the much-contested question of how much competition matters.

Admittedly, the competition wasn’t the all-out, balls-to-the-wall competition one might expect of a market-driven economy. The profit motive never came into play as a motivator. But the NHS did hold hospital managers accountable for results, and their pay and career prospects could be affected by the outcome. So, the competitive pressures were real, even if less than if the hospitals were for-profit entities.

Now the results are in. Competition leads to superior patient outcomes, according to a paper published by Martin Gaynor, Rodrigo Morena-Serra and Carol Propper by the National Bureau of Economic Research, “Death by Market Power: Reform, Competition and Patient Outcomes in the National Health Service.”

Within two years of implementation the NHS reforms resulted in significant improvements in mortality and reduction in length-of-stay without changes in total expenditure or increases in expenditure per patient. Our back-of-the-envelope estimates suggest that the immediate net benefit of this policy is about £277. While this is small compared to the annual cost of the NHS of £100 billion, we have only calculated the value from decreases in death rates.

While the UK is introducing more competition into its health care system, the U.S. is strangling competition. Provisions in the Affordable Care Act will severely curtail the expansion of physician-owned hospitals, which provide much-needed competition in many markets. Indeed, Obamacare threatens the ability of existing physician-owned hospitals to compete at all over the long haul. Obamacare will lead to the cartelization of the health care industry around large health care systems that dominate their markets with little to fear from interlopers.

While Obama’s academic gurus expect wonderful things to arise from nifty ideas like Accountable Care Organizations, the ossifying structure of the health care industry, I predict, will nullify the gains from such innovations as hospitals gain increased pricing power in the marketplace.

(Photo credit: Washington Post.)

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6 responses to “Does Carilion Need More Competition?”

  1. "….and physicians meet nightly with nurses to review the next day's appointments to ensure the visits are productive."


    Who is paying the overtime for all this night work?

  2. Gooze Views Avatar
    Gooze Views

    It is a shame you don't reference the Wall Street Journal's piece on Carilion of a couple of years ago.
    It was a scathing investigation of the Roanoke complex showing how it was buying out doctors' practices and forcing them into its arms. After which, they set price way higher than the regional norms. Their prices for colon exams, MRIs and CAT scans were far higher than the regional price. They were aggressive in going after people of modest means who could not pay their bills. One day a week was dedicated "Carilion Day" in General District Court as the hospitals' lawyers showed no mercy in getting people to pay.
    I wonder if Carilion has cleaned itself up so soon or if the Obama idea you like so much will make much difference. I almost am skeptical about the Brits and NHS.
    Look up the Journal piece. I blogged on it in BR a couple of years ago.

    Peter Galuszka

  3. Larry G Avatar

    I too remember some negative reports coming from Carilion's way … and if not mistaken, they have a virtual monopoly on many things medical in that region with little hope of real competition.

    But Jim keeps setting up stawman about different initiatives insie and out of the current administration

    and then proceeds to knock them down…

    usually with a swipe at the futility of the govt trying to "do competition" and usually with a butt-covering reference to England or Europe to "prove" that they are big failures also

    and the final implication

    that no govt in the world does health care "right" and that the "right" way to do health care is inherently capitalistic and competitive.

    The only problem is – we also have dozens of countries in the world who actually have such health care with a minimum of govt.

    We call them 3rd world countries.

    How come we never see Jim B write a piece about the 10 best non-govt, capitalistic health care systems in the world – as potential models for us if we have decided that govt healthcare is such a failure?

    Surely there must be a couple of countries the world that do capitalism healthcare "right" that can be pointed to as proof that better approaches do exist.

    Forgive me if I have trouble buying the ideological blather that passes for "ideas" from the Conservative party these days.

  4. Larry G Avatar

    re: electronic medical records

    had a little problem a couple weeks ago.

    the primary care physician did an EKG and claimed there was something "abnormal" that needed the attention of my cardiologist.

    Now.. I knew that my cardiologist had also done an EKG last year but I dutifully made the appointment.

    but then.. before I went, I had to make sure that the primary care EKG was sent to the cardiologist (which had not been done) but even then they had to make a paper copy of it and fax it.

    Once at the cardiologist – we compared the two EKGs and they were exactly the same – and they commented that the "abnormality" had been previously seen and diagnosed as normal – AND shared with the Primary Care.

    Here's my point.

    Look at what happened and how the information was "communicated" and ask yourself if you see administrative waste and the potential to not only spend a lot of money that was not necessary but information was not being communicated – and incorporated in the medical history – and used for decision-making.

    Remember – this is the PRIVATE for-profit, fee-for-service model that we use in this country.

    Is there any doubt that my insurance company was billed at least twice as much than was actually needed – even though all the "correct" codes were submitted for reimbursement.

    I see this as convincing proof of what is wrong with our "capitalistic" health care system.

    Neither the Doctors nor my insurance care about the costs, the administrative waste, nor the clear implications of bad/wrong diagnoses.

    Everyone is happy as long as they get their money.

    No wonder we spend twice as much for health care as other countries – and most of them do use electronic records – an we do not.

    And why don't we ?

    Basically because the doctors claim they are small businesses and see it as an additional expense that they won't be compensated for.

    In other words, they'll make LESS money if electronic records result in less costly treatments and less medical record "churn".

    Don't ya'll ever wonder when you visit a doctor other than your primary care physician how much of your medical history the referral doctor ever sees about you?

    Do you suspect that he/she see's little when on your initial visit they hand you a clipboard upon which you are supposed to remember and fill in your entire medical history from the time you got you vaccinations until the colonoscopy you had recently?

    My own primary care physician cannot go into his records an see when I had my last colonoscopy and was asking ME and was going to specify another one if I had not remembered…

    this is dumb stuff… but this is how the "greatest health system in the world" .."works".

  5. Anonymous Avatar

    From what I've read, electronic medical records have great potential for saving money and providing better patient information. But they also raise issues about privacy, security and an auditable trail. Presumably, all of these factors can be addressed.


  6. Larry G Avatar

    My understanding is that the system could be implemented with encrypted security – similar to the encrypted security that Blackberry uses – which you may have heard of recently as it cannot be easily broken and some governments don't like it but the US govt considers it secure enough to move confidential information on.

    Your data could stay on a remote server and only be accessible with your permission as you would hold the encryption key.

    You could also have your data put in a USB to carry with you and to present.

    The primary problem is the same problem that private industry has had with VCRs, cell phones and technologies that require compatible standards.

    Here's another standard that IS IN USE – universal medical codes:

    "Health Insurance Portability and Accountability Act of 1996 (HIPAA) use of the HCPCS for transactions involving health care information became mandatory"

    Healthcare Common Procedure Coding System (HCPCS)

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