Non-Prophets: Is High Cost Care Economically Justified or Culturally Tone Deaf?
Non-Breaking News: Hospital CEO Defends High Prices
The numbers are in: Seven out of the ten most profitable hospitals in the country are “not-for-profit.” I’d bet that at least nine out of ten healthcare folks reading this, if not all ten, aren’t surprised by the headline. A few may be quick to point out that the “not-for-profit” tagline is merely a tax designation. Others will say the study itself was looking at variables driving profitability, not passing judgement. But for most of us the issue runs deeper than semantics. Wouldn’t it be great to sit down with a leader from one of those non-profits and ask them bluntly about their eye-popping revenues?
Ask and ye shall receive. Commonwealth Magazine published a sit down with David Torchiana last month. Torchiana, or “the Torch,” serves as CEO of Partners Healthcare, the “800 Pound Gorilla” of Massachusetts healthcare delivery. In addition to offering an insightful look at the man himself, the interview provides a look at the state of policy, reform, economics, and other issues as they relate to Partners’ position in healthcare delivery in my own home state, the Commonwealth of Massachusetts.
Most importantly, a central thrust of the chat revolves around the high prices at premier healthcare systems and whether they’re justified. Whether or not you agree with him, this offers valuable insight into the inscrutable complexity of those large, academic medical centers. We refer to them as “providers” or “delivery systems” — but as economic hubs of their regions, they have much more going on than delivering patient care.
Torchiana offers three overarching reasons why he thinks it’s okay that care at Partners costs so much more than average:
- Partners is a huge local employer, and lowering prices would force massive layoffs in the state
- Partners is a world leader in scientific research; they’ve invested, brought in external funding, created high-paying jobs and boosted the local economy
- Cost shifting is part of doing business — high commercial rates help subsidize low government rates; high prices for procedure X help subsidize low reimbursement for procedure Y, and so on
You don’t get to be a $2 million CEO on talking points alone — let’s take a look at his points more closely.
“The Torch” Speaks Up
In talking about why Partners opposes state-level cost-setting programs (where commercial insurers set a range of rates), Torchiana starts off by explaining some of the economic chips at stake for his organization:
“Of the $467 million to be extracted in rates, $450 million of it comes from Partners. About 66 percent of our hospitals’ expense base is in salaries and people. If you divide $450 million by two-thirds, you get $300 million, which works out to somewhere around 3,000 FTEs. It’s supposed to be implemented on January 15, 2017. If it happens, we’ll have to go through a pretty massive reduction in workforce.”
Obviously, most organizations would oppose policies that directly crimp their revenues. On the other hand, Torchiana’s argument is not entirely without reason. Beyond layoffs, Partners is an institution in Boston. They employ nearly 70k people. They invest in ongoing commercial development. Their flagship hospitals — Mass General and Brigham and Women’s — attract an influx of students, researchers, clinicians, professors, and patients from around the world.
Healthcare jobs comprise 10.6 percent of all jobs in Massachusetts, which is substantially higher than the nationwide average (9 percent). And those numbers probably don’t take into account the other jobs created by the healthcare machine — construction, retail, hospitality, security, transportation, IT, and so on.
In Torchiana’s eyes, Partners’ higher prices are justified not only because they are a local anchor for the economy, but because they’re investing in science and research at an unrivaled clip, drawing additional talent and high paying jobs into the state:
“If you look at institutions around the country, the Brigham and the MGH are right around Nos. 13 and 15 over recent years. Added together, Partners is No. 1 in terms of NIH grants. Those grants have generated 113 Partners startups in the region, 200 in the world. And this chart shows the impact in Boston. Boston life sciences companies valued at more than $100 million have tripled over the last 10 years. No other city is moving at anything like that rate. Larry Summers describes Boston as being to the modern evolution of science as Florence was to the Renaissance. He believes this is the world’s epicenter for very dramatic changes in life sciences which will have very profound impact on human health over the next 10 to 20 years.”
He also opens up about cost-shifting, in terms of explaining away the differential rates between differently insured patients. Here is some blunt talk on why some procedures’ price tags are so high at Partners:
“We lose money on 60 percent of what we do and we actually generate a margin on 40 percent of what we do. In aggregate, hopefully, we break even or have a 1 or 2 percent margin at the end of the year. The things that we get overpaid on allow us to do the things that we get underpaid on…MRIs are one of the things we get paid with a margin to help fund psychiatry and pediatrics.”
Don’t Hate the Player, Hate the Game….But Maybe Dislike the Player’s Tactics
During the US Healthcare system’s shift to value, there’s a popular tendency to demonize these big systems, bemoaning the perverse incentives and bloated inefficiencies of healthcare (look no further than some of the comments in the WaPo piece.) Yet if we zoom out to the state level, we can see that to some extent, these systems are simply the incumbent agents of a broader economic machine that cranks out new job growth, commercial development, and taxable revenues.
While that explains some of it, Torchiana is also in a position where he simply cannot be the flagbearer for alternative models of price restriction. He comes close to admitting this, coyly deflecting the blame to regulators:
“You could say, and I would not argue, that this is such a muddled situation and the attention on this is so intense that somebody ought to step in and regulate this in a much more sensible way.”
Might he be talking about the historic cost reforms happening in Maryland, where alpha-dog systems like Johns Hopkins and Medstar have agreed to uniform price setting? Even if he is, it’s clear he doesn’t envision similar approach taking root in MA during his tenure. And while some pundits predict the disappearance of the hospital as the brick and mortar revenue center, Torchiana and his peers around the country have free reign to play Bob the Builder under the auspices of economic development.
Either way — its clear that the Brand Name systems will continue using their clout to defend their turf and justify whatever revenue strategies they pursue. And let’s be clear on two things: First- Partners is far from the only system to face criticism for their hegemonist leanings. Second — some of their money is definitely going to the right places — Joe Kvedar’s Center for Connected Health, for example, or the innovation team at Brigham and Women’s are best-in-class examples of highly functional clinical innovation labs.
But rather than issue glib observations about subsidizing low-revenue patient care and social services, perhaps Torchiana could direct investment in social services more formally. When asked about how to define quality, Torchiana only spoke about the new business generated by patient recommendations. This reminded me of the tone-deaf CIO who cares about HCAHPS scores but not about what patients are saying. These things are not what quality is about, nor is this the right tact to be taking as a leader in a value-based era.
- Compare this to Geisinger CEO David Feinberg, who has boldly stated his job is to “put myself out of business.”
- If you don’t care about a CEO’s scripted soundbytes, look instead to Mt. Sinai, who has crafted a marketing campaign to engage the public: “if our beds are filled, it means we’ve failed.”
- Jonathan Bush of AthenaHealth is not a hospital CEO, but he’s been steadily steering his company into the inpatient space with new deals and bold prognostications.
- Sachin Jain, newly minted CEO of CareMore health — seems much more interested in creating and sustaining best-in-class patient care than he is about costs and prices.
As trite as it may seem, progress at these big ships really does depend about a shift in attitude, a shift in culture. As we move into an era of value, accountability, and transparency, a fundamental competency of healthcare leadership will be the ability to genuinely disconnect from present day business realities to re-imagine their organization’s reason for being. It starts at the top and trickles down from there.
Look, I’m no Pollyanna. It’s flat out unrealistic to expect Partners to start slashing their own prices with the same zeal they’ve jumped into biomedical research, global business models, unending construction, hospital acquisition, and brand-building. But it shouldn’t be asking too much in this day and age for a CEO to acknowledge that setting higher prices without delivering measurably higher quality care is a goonish tactic that’s contributing directly to market dysfunction.
Partners and their brethren around the country will never settle for second place in their markets — and that’s okay. But they have an opportunity to rewrite the script on what being in first place really means in a value-based era of healthcare delivery. Under Torchiana’s leadership, Partners’ brand seems more interested in looking back at the last 10 years of turf wars in one state and building edifices, than in looking forward to the next 20 years and building infrastructure for a sustainable, fiscally responsible, broadly scalable, high-value care delivery model.
