“There's no excuse to be an uneducated healthcare consumer. It's not just thousands of dollars out of your pocket every year. It's your life.” - Dr. Dranove
“I don't think most people realize that the primary care physician today is not necessarily looking out just for their own interests. They have competing masters. The patient used to be the boss of proprietary care position. Now that position [has] two bosses….” - Dr. Burns
Have you ever wondered about how a health group impacts your healthcare? On today’s episode, Dr. Burns and Dr. Dranove join Shireen to discuss just that! They also share their insights on megaproviders, insurance, and primary care. Their joint book “Big Med: Megaproviders and the High Cost of Healthcare in America” is available for purchase at University of Chicago Press and “US Healthcare Ecosystem” by Dr. Burns can be found at McGraw-Hill.
As an expert in healthcare management for forty years, Dr. Burns has MBA in Health Administration and has a Ph.D. in Sociology. He is the James Joo-Jin Kim Professor, a Professor of Health Care Management, a Professor of Management in the Wharton School at the University of Pennsylvania, and the former Chair of the Health Care Management Department. Currently, he serves as Co-Director of the Roy & Diana Vagelos Program in Life Sciences and Management, and as Director of the Wharton Center for Health Management & Economics.
Dr. Dranove is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg School of Management, where he is also Professor of Strategy. He was previously Director of the Health Enterprise Management program. He has a PhD in Economics from Stanford University. He has published nearly one hundred research articles and book chapters, and written five books. Consulting regularly, with leading healthcare organizations in the public and private sector and serving on the Executive Committee and Board of Directors of the Health Care Cost Institute, Dr. Dranove has also served as the lead economics expert in several high profile healthcare antitrust cases, including FTC v. St. Luke’s Healthcare System and U.S. v. Anthem and Cigna.
Shireen: Podcasting from Dallas, Texas I’m Shireen. And this is the Yumlish Podcast.
Yumlish is working to empower you to take charge of your health through diet and exercise and reduce the risk of chronic conditions, like type two diabetes and heart disease. Through amplifying the voices of healthcare professionals, educators, and communities, we hope to share a unique perspective and a culturally relevant approach to managing these chronic conditions with you each week.
Dr. David Dranove is the Walter McNerney distinguished professor of health industry management at Northwestern university’s Kellogg School of Management, where he is also Professor of Strategy. He was previously director of the health enterprise management program and has a Ph.D. in economics from Stanford University. Welcome Dr. Dranove.
Dr. Dranove: Thank you. Happy to be here.
Shireen: We have a second guest, joining us on our podcast today. Dr. Lawton Robert Burns holds a PhD in sociology and MBA in health administration. He’s the former chair of the healthcare management department. The James Joo-Jin Kim Professor, a professor of healthcare management, and a professor of management in the Wharton School at the University of Pennsylvania. Welcome, Dr. Burns.
Dr. Burns: Thanks, Shireen.
Shireen: Alright. Great to have both of you on, joining our podcast today. It’s a new one for us, because we have not done one with two guests before, so we’ll see how this one goes. Um, so welcome to both of you. I would love to start out by learning. How did you develop an interest in healthcare industry management and economics?
Dr. Dranove: Well, I’ll start. I was getting an MBA at Cornell University when I took a course in healthcare management. And was encouraged by the professor to serve as a research assistant on some work he was doing in economics. And I really enjoyed it, recommended that I do a PhD in economics, so that I could become a health economist, ended up coming out to Stanford, where I studied with Alan, then Toby, one of the real great industry leaders of any generation, often called the father of managed care managed competition. And, uh, it’s been almost 40 years since then and I enjoyed every minute.
Shireen: Lovely. Dr. Burns?
Dr. Burns: Well, I was a doctoral student in sociology at the university of Chicago had just finished reading Alfred Chandler’s work on the sort of historical development of, um, industrial enterprises in the U.S. I was working in my third year, my doctoral program, as a research assistant in the health administration program. And I just stumbled across an article in their library. And now hospitals were doing some of the same things that Alfred Chandler had described, took place in the industry, you know, 40, 50 years earlier. And that’s what caught my attention. That’s what I wrote my dissertation on. And I’ve been doing healthcare ever since. And that’s since 1976.
Shireen: In your book, your new book – and we’ll talk about your book in just a second as well – but you talk about, uh, megaproviders. I would love to start out by learning a little bit about what exactly are megaproviders. Can you define that for us?
Dr. Burns: I think anybody who lives in a metropolitan area knows what a mega-provider is. It’s the big healthcare system that if you’re in a big enough city, maybe two or three megaproviders are in your area. The system will consist of several hospitals that you will have lots of physician practices.
They won’t be sitting in what used to be big box stores and things and circuit city that had now been converted into outpatient centers, intermediate care centers. And these are massively large organizations. Many of them bring in billions of dollars annually, and they have become the dominant healthcare providers across the country.
Shireen: And how do these megaproviders really impact healthcare costs, or even performance for that matter?
Dr. Burns: Well, they have, uh, several impacts. One is they increased healthcare prices that they charge to the insurance companies, uh, and those healthcare prices charge the insurance companies get passed onto the employers, who are, you know, contracting with the insurance companies and the healthcare employer, the employers then pass along those higher prices in the forms of higher premiums to their employees.
That’s you and me. And so it eventually ends up, uh, having higher prices paid for healthcare by the consumer, as well as higher costs born by the healthcare system paid for by the insurers.
Shireen: And so are there any pros of having megaproviders? Do they provide any value?
Dr. Burns: There are a couple, and I’ll let David supplement my remarks. Um, they, they, it’s basically a herding instinct. Safety in numbers. And so if you form a mega-provider, you’re much less likely to be driven out of business or go bankrupt and go out of business. And so their survival prospects are enhanced by forming these systems. The expression in the industry is “too big to fail,” and that could be both good and bad.
So that’s one thing I think a second benefit is because they’re too big to fail, they are less of a risk to the, uh, to the bond, uh, the bond agencies that lend them money and the bond rating agencies. So they have more highly rated debt. They can borrow at cheaper rates and then they can help invest some of those monies in their members at lower costs. So those are some pluses.
Dr. Dranove: So let me add to that, that many positions, these days are speaking national security, a lot more difficult to practice than it used to be because of regulation because of having to deal with powerful health insurance companies, that, uh, physicians have enjoyed a lot of security.
They’re not necessarily happy working as employees, with big organizations. As far as patients are concerned, there are a lot of these healthcare systems that are actively engaged and using advanced health information technologies to try to change the way healthcare is delivered to improve outcomes. Unfortunately, thus far, the evidence suggests that it’s still a work in progress that we are seeing higher healthcare costs, any consistent benefits.
Dr. Burns: But let me add, just add one other thing to what David said, would be system to, um, sign up and employ lots of doctors. You know, what the systems would like to argue and what in fact, what they do argue, is that they’re providing greater value, which means they’re – the patients who use those systems or are going to providers who offer care that’s higher quality and lower cost.
Unfortunately, the empirical evidence shows just the opposite. The patients get channeled to providers who are higher cost and lower quality, so they’re getting negative value. That’s a story nobody likes to talk about.
Shireen: And so can we talk through some of those costs? So how are costs for chronic healthcare specifically affected by megaproviders?
Dr. Dranove: Well, the first, most obvious thing that happens is the prices for everything go up. I published a study a couple of years ago, showing that when hospital systems acquire physician practices, the prices of the physician, that the physicians are charging to help insurers, pricing are then passed along to us, as consumers, go up by an average of 15%.
And there’s no change in the way of care as delivered, at least in the evidence that we’ve looked at thus far. I, I don’t want to go too far before acknowledging that when you’ve seen one mega-provider, you’ve seen one mega-provider. Some of them seem to have figured it out better than others. Some have much better reputations, for example, that are very strong reputations, the Kaiser system, at least the way it operates from the West Coast and the Intermountain System operating out of Salt Lake City. Um, others seem to be unable to demonstrate at the same level of performance, and I think I’m going to keep those. ..They need medical care in their communities.
Dr. Burns: Now when – there’s a, there’s a multiplier to what David just mentioned. So these megaproviders are charging higher prices and incurring higher costs with no difference in quality for these patients, and studies show that the really chronically ill patients have costs that are a multiple of what regular patients are. You know, some studies say it’s even 17 times higher, you know, across inpatient care, outpatient care, medication therapy. And so if you have a 17 fold difference in costs for the chronically ill, and then you treat them in a system that’s higher cost and charging higher prices, I think you’re getting a double whammy here.
Shireen: Can we specifically look at diabetes? Can you give us an example of how that affects someone who has diabetes?
Dr. Burns: Well, you know, the, the services charged by the endocrinologist, uh, will be higher. Um, the, the quality of care won’t necessarily be any better. Um, any other services, you know, going to see your primary care – primary care physician before you get referred to a n endocrinologist, that will be higher.
And so these higher costs, you know, accumulate over a number of different office visits to the different doctors you’re going to see. And then, you know, diabetes is a chronic condition and so you have multiple visits, follow on visits, then you have the medications themselves. And so, uh, the higher prices and, uh, charged by these systems, at least for the professional services, because diabetes is going to be treated more in the outpatient setting tmasthan the inpatient setting.
Um, those are just going to accumulate.
Dr. Dranove: Patients who have chronic conditions like diabetes, get to become the millionaire customers to their doctors. They’re strong. They build strong relationships with their physicians, The strongest of all of primary care and before the formation of megaproviders, the patient and the primary care physician could think about lots of different options for where they receive their care from endocrinologists or other specialists as complications arise.
They wouldn’t all necessarily be part of the same organization, but then now on the day that you choose your primary care physician, you’re essentially locking yourself into the specialists that belong to the primary care physicians. And those aren’t necessarily the best doctors. The more specific they are, the doctors, that’s the financial interests of your physicians and employers.
I don’t think most people realize that the primary care physician today is not necessarily looking out just for their own interests. They have competing masters. The patient used to be the boss of proprietary care position. Now that position is two bosses and they have this third post interest doesn’t always work out in the patient.
Shireen: So, where do we go from here? Right? Is there, is there, uh, uh, you know, is there a tunnel, like, is there a light at the end of this tunnel or where does this specifically again, would that interest on the diabetes side? Uh, What do the next steps look like? Is this going to get better? Is it going to get worse?
Dr. Burns: I would look for the megaproviders to unbundle themselves. Uh, in any, any form of a public interest, uh, motivation, what we’ve learned from in the past, this happened 20 years ago is that they had to unbundle themselves because of financial pressures, uh, and the higher costs of operating these systems that they couldn’t sustain at that time.
And so all the doctors they had acquired during the 1990s, they kind of let go. And now they’re reacquiring doctors again. It’s like the cycle we go through. So I don’t know if you want to call that a market remedy. It’s just the cycle. We kind of go through. I don’t, it’s hard to have that hand a government or any other, um, uh, bully pulpit actor, come in and tell the hosp – these megaproviders what to do
Dr. Dranove: Before we talk more about how to get things better, let me mention one other problem that we barely touched upon, which is these positions who are now serving two masters are less happy about their work positions or treating their jobs, not so much as professionals might look at a job, but as technicians. They show up in the office. They follow the prescribed rules for how to take care of their patients.
And they go home at the end of the day. I can’t help, but think that this depersonalization of the medical experience is hurting patient care as well, which makes me think that one of the most important things we have to do is once again, recognize the central role of the physician in the healthcare system and stop treating physicians as profit centers within these megaproviders.
We are seeing an increasing interest among physicians in entering the realm of health management. And I can’t help think that that’s a wonderful trend that physicians on the line, so to speak, who are making the day-to-day medical decisions, will feel much better about their relationship with their bosses or physicians themselves and understand the complexity of the job and the difficulty.
Uh, balancing the needs of the organization. Again,
Shireen: You mentioned the bundle of care. Can you tell us a little bit more about what that is and how that may change the current model?
Dr. Dranove: So historically healthcare has been paid for on what’s called a “fee for service” basis. People buy – They call it “À la carte.” You buy each test, each drug, each day in the hospital. Each one is paid for separately.
As a result, there’s long been an incentive to do, provide more services. It makes sense that if you have paid for each service, you provide with your financial incentive to provide more service. In recent years, health insurers in the federal government have started to think in terms of bundles of care or episodes of care. A good example might be all of the services required in the year of the life of a diabetic and you can, by delving into medical records, identify those services, and you basically tell the provider we’re going to give you a lump sum. Here’s $25,000. Take care of a year in the life of a diabetic and suddenly you now have to incentivize that provider to think carefully about each and every service provided and more importantly, act to make sure they don’t need costly services.
Dr. Burns: Well, the, the buck, here’s how the bundles are designed to bring together the various parties, rendering care. Doctors in different specialties, the hospital, maybe post-acute care sites for elderly patients and bring them all together and have one common payment for them. So it’s basically, you assemble everybody in the room, you say, okay, here’s the total amount you folks are going to get; you folks figure out how to provide the care under a budget cap.
And then you split that – you split up the money inside in ways you think are most equitable. So it’s, it’s, you know, it has the effect of fostering a conversation that never happened before between different kinds of specialists and with the hospital and other providers on what’s the best way to do it and how to divide up the money.
That’s now that’s the way it’s supposed to work in theory,
Dr. Dranove: That’s the theory.
Dr. Burns: But as Yogi Berra said, you know, “In theory, theory and practice are the same; in practice, they’re not.” And so the practice of the set is that the bundles only work in a handful of situations, which are discrete acute care well-defined conditions.
You know, you, you come in, you get treated, you go out and there’s some of a rehab post-op, you know, so for example, uh, knee and hip surgery, uh, may work well as a bundled payment, but then when you try to extend that model to other kinds of clinical conditions, it doesn’t work that well.
Dr. Dranove: On top of that, Well, the theory is that you get all of the providers quote, “rowing in the same direction.” We’re all working towards the same goal. At the end of the day, most of the providers are still paid a fee for service. And while the organization has accepted a single bundled fee, say that $25,000. If they’re paying their individual doctor’s fee for service, how are they going to get those doctors to change their behavior?
And if you don’t get doctors to change their behavior, You haven’t accomplished that.
Shireen: My last question to you is what action is really being taken to counteract and reform the negative impacts of megaproviders as they stand today and what else can be done to that end?
Dr. Burns: Well, one thing they’re trying to do, and then we’ll talk about just how enthusiastically or passionately they’re doing this, is the, some of the larger systems are, have launched programs to address the social determinants of health, you know, housing, uh, food, uh, economic security, uh, all those kinds of things. And you know that that’s right now, the social determinants of health are one of the big, big picture items on the agenda for how to really get at health status and improve the population’s health status.
So the research shows that it’s the larger providers who are making those investments. Now that’s the good news. The bad news is that only about 9% of the hospital systems in this country are actually making those investments. And then the even worse news is that they’re only spending about $2 million per program, which is chump change compared to the revenues that David’s cited that they’re bringing.
Dr. Dranove: Some people might think of this as an unholy Alliance, but health insurance companies are now working with providers. It’s a data-driven world and health insurance companies have massive amounts of data on how healthcare is delivered and are able to use that data to figure out what is most effective at lowering the cost of care.
Some might argue that that’s all they care about is lowering the cost of care, but health insurance recognize that keeping patients healthy today as a way of reducing healthcare expenditures in the future. And so you are seeing efforts by companies like United and Cigna to use their data. If they get these health insurance companies to help bring about positive change in the way providers deliver care.
Shireen: Dr. Dranove, before I let you go, I’d like to learn from you. If there is anything that is not mentioned in your book applicable specifically to our listeners who are dealing with chronic illnesses or caregivers for those with chronic illnesses, um, is there anything that is not covered in your book related to the cost and quality of care that you would like?
Dr. Dranove: Even though we had complained about the growth of megaproviders, it’s still the case that most patients have a choice of healthcare providers, especially in bigger cities where you still have some degree of competition. This means that you have an ability as a consumer to shop around and find the provider that’s best for you.
It’s rather depressing though, to think about the fact that people don’t tend to shop around for the medical care that I would have to guess that the average listener has spent vastly more time shopping around for cell phones than they’ve ever spent, trying to find the best Endocrinologist or the best hospital, or even to comparison shop at most drugs. The information is out there; it’s on the internet. It’s a fingertip away. You can get amazing information about healthcare provider quality from Medicare. So that is EMS Medicare services or I think it’s medicare.gov and it’s information to consumers right on the homepage.
You can enter in your health care problems. You could enter in your zip code, and it’ll give you all kinds of information about the available providers. Many health insurers are doing the same thing for their enrollees. The United health group, for example, there’s a very robust website where helps you choose providers with all kinds of information about both cost and quality.
We need to be better consumers, if we are going to hold our providers responsible. One of the most important decisions they are going to make are your lives.
Dr. Burns: Being better consumers, we have to be a lot more literate about the healthcare system. We need to understand what the healthcare system is. We need to understand what insurances and what all those insurance terms are.
When you choose a plan at the annual enrollment period. I understand the trade offs you’re making. When you choose that plan, what it’s going to mean for your premium versus your out-of-pocket spending down the road. We’re just not that literate.
Dr. Dranove: Well, let me add to that. The wonderful research has shown that when given the choice of health insurance plans, most people choose the wrong plan for their needs.
They choose plans with cost-sharing provisions, or access to providers that don’t match with their particular medical needs. Then they need to go to their employer. Tell the employers I need help with choosing a plan. There are excellent consultant firms out there that are pretty inexpensive, considering the stakes involved, that will work with health and work with employers to help employees find the plans that are best for them.
There’s no excuse to be an uneducated healthcare consumer. It’s not just thousands of dollars out of your pocket every year. It’s your life.
Shireen: Thank you so much for sharing that both Dr. Burns and Dr. Dranove. We really appreciate your time on here. Before we let you go, I would like to let our listeners know about the book that the both of you wrote together. It’s called “Big Med: Megaproviders and the High Cost of Healthcare in America.” Dr. Burns, you have a book called “U.S. Healthcare Ecosystem.” Can the both of these tell us more about these books and how folks can connect with you?
Dr. Burns: Well, “Big Med” is available from the University of Chicago Press, where David and I both taught and, uh, the “US Healthcare Ecosystem” is?
Dr. Dranove: Yes, you can go to University of Chicago Press
Dr. Burns: And in “US Healthcare Ecosystem” from McGraw-Hill.
Shireen: Thank you both again for your time. It was a pleasure having you on.
Dr. Burns and Dr. Dranove: Thank you, Shireen. Thank you.
Shireen: And for our listeners out there, head over to our social media. We have a poll question of the week for you to answer. Thank you again, Dr. Burns and Dr. Dranove. Thank you for listening to the Yumlish Podcast. Make sure to follow us on social media @Yumlish_ on Instagram and Twitter and @Yumlish on Facebook and LinkedIn for tips about managing your diabetes or other chronic conditions. You can also visit our website, Yumlish.com, for even more information and to get involved with all of the exciting opportunities Yumlish has to offer. All of the links are in the show notes below, so please don’t hesitate to check us out! If you like this week’s show, make sure to subscribe to the Yumlish Podcast. Give us a like, comment, or a five star review, and share us with a friend.
This is Shireen signing off. Thank you again. And we’ll see you next time. Remember your health always comes first. Stay well!