Crushing innovation
by James C. Sherlock
Jason Hwang and Clay Christensen in 2008 published “Disruptive Innovation In Health Care Delivery: A Framework For Business-Model Innovation.”[1] They observed, “Health care remains expensive and inaccessible to many because of the lack of business-model innovation.”
They further wrote: “It is almost requisite that any discussion about the future of health care begin with a reference to the unsustainable growth rate of U.S. medical spending. Charts and graphs expound on health care’s accelerating share of gross domestic product (GDP), depicting a voracious beast that threatens to swallow what little money remains for other vital services.”[2]
The regional monopolies that dominate Virginia healthcare are motivated by their bottom lines, not yours or the government’s. Innovation has been blocked in the Commonwealth for two familiar reasons: the high stone wall of COPN and the economic and political power of the regional monopolies that COPN has built and protects.
“In health care, most technological enablers have failed to bring about lower costs, higher quality, and greater accessibility,” Hwang and Christensen observed. “Legacy institutions of health care delivery are jumbled mixtures of multiple business models struggling to delivery value out of chaos.”[3]
The most profound examples of conflicting business models in healthcare are vertically integrated health systems.
The most complex of these in Virginia, Sentara Healthcare, a self-declared nonprofit, is a conglomerate comprised of 62 tightly controlled businesses including acute care and rehab hospitals, outpatient ambulatory surgical centers, diagnostic imagery centers, physicians practices, home health businesses, a large HMO and overseas reinsurer components among others. These are a mix of for-profit and nonprofit businesses, the most profitable of which are the nonprofits.
The business interests and ethical obligations of the management of hospitals and health insurers, just to pick two, are directly opposed. Hospital-centric health systems like Sentara, or even state-owned VCU Health, achieve nearly all of their corporate profits through their acute care hospitals. The rest of the components of the enterprise are managed to support that outcome. They own physicians practices to control referrals. They own HMOs with narrow networks to ensure a steady flow of the most profitable patients to their own hospitals. They make enormous profits. The compensation of the CEO of Sentara Healthcare was $5.2 million in 2017.[4] What would motivate him to voluntarily to lower prices?
The problem is not that proven innovation is unavailable in America, it is just not available in Virginia. Consider…
Pennsylvania-based Geisinger’s is a leader in new healthcare models. A new eight-suite community childbirth center in Scranton, Pa., staffed with nurse midwives and OB/GYNs is hugely popular. Its home care model uses teams of medical professionals to treat vulnerable patients in their home. The results: In 18 months, “for the more than 5,000 patients that have been enrolled in the program we’ve seen a 35% drop in emergency department visits, a 40% decline in hospital admissions, and an average annual reduction in spending per patient of almost $8,000. Most important for patients is their improved quality of life.”[5]
Why does nothing like that exist in Virginia? Because model that results in a significant annual reduction of spending per patient is fiercely opposed by many Virginia hospitals.
The Commonwealth has defended COPN’s denial of equal access to companies from other states in federal court. Here are some questions to ask of your local hospital to understand its approach to accountability.
- Is every physician paid a salary rather than paid for his/her contribution to revenue?
- Is there a senior physician assigned direct accountability for your care when you are admitted as an inpatient?
- If so, is he or she a specialist in your primary medical issue?
- Does he or she have the authority to assemble a team for fully integrated care in cases of difficult diagnoses or co-morbidities? Is your primary care physician encouraged to participate?
If the answers to those questions are all yes, congratulations, your local hospital may be the Mayo Clinic. Physicians whose practices are owned by hospital systems or who help staff them as independent practices have to trust the management of those systems to shift to a Mayo Clinic model. They by and large do not in Virginia because of the way the regional monopolies treat them.
Association health plans (AHPs), in which small employers band together to get double digit insurance savings, were legalized by a Labor Department rule in 2018 and successfully implemented in 13 states. Attorney General Mark Herring, always stalwart in his opposition to choices in healthcare, joined 10 other states in a suit to reverse the federal rule that was successful at the federal district court level. It is in the appeals process.
A bill in the 2020 General Assembly to emulate Maryland’s highly successful exemption of physician-owned surgical centers from its Certificate of Need law was defeated. It would have saved Virginia patients hundreds of millions of dollars annually, but the hospital lobby predictably was stronger than the public interest.
The General Assembly even defeated a bill to bring better primary care to the poorest areas of Virginia through Health Enterprise Zones, another successful Maryland innovation that has improved access and public health and lowered Medicaid costs. It was reportedly defeated because the Democrats did not want its Republican sponsor to get credit.
I intend to seek in the 2021 General Assembly sponsorship of a bill modifying Virginia law to grant permanent COPN exemptions to Mayo Clinic, the best hospital the world, and Cleveland Clinic, the best heart hospital in the world, should either or both wish to establish Mid-Atlantic regional centers in Virginia. It will be fun to watch the angst among the people’s representatives.
James C. Sherlock, a Virginia Beach resident, is a retired Navy Captain and a certified enterprise architect. As a private citizen, he has researched and written about the business of healthcare in Virginia.
[1] HEALTH AFFAIRS ~ Volume 27, Number 5, pgs 1329 – 1335
[2] ibid.
[3] ibid.
[4] Sentara Healthcare, Form 990, Return of Organization Exempt from Income Tax, 2017
[5] Janet F. Tomcavage, Jaewon Ryu and Sanjay Doddamani, Geisinger’s Home Care Program Is Cutting Costs and Improving Outcomes, Harvard Business Review, November 6, 2019
