|WHAT WE’RE READING
Stuff we read this week that made us think.
Would every patient benefit from care at a teaching hospital?
Teaching hospitals and academic medical centers are assumed to have higher costs than their nonteaching counterparts. This has led to efforts to triage the sickest patients to teaching centers, reserving this expensive capacity for those who may benefit the most. A study in this month’s Health Affairs challenges this assumption, and suggests teaching hospitals may have a much broader impact on patient outcomes. Using Medicare claims data from over 11M hospitalizations, the authors (who include well-known health policy and economics researchers Ashish Jha and Austin Frakt) found that medical and surgical patients receiving care at teaching hospitals had significantly lower mortality rates—and contrary to common belief, many groups of low- and medium-severity patients also benefitted from teaching hospital care. In fact, low-severity medical patients showed one of the greatest deltas, with a whopping 17 percent lower chance of mortality in teaching versus community hospital settings.
A deeper look at the analysis, however, suggests that other factors beyond teaching status—such as hospital size or sophistication—may also explain the outcome disparities. Size of hospitals in the cohorts varied dramatically (41 percent of nonteaching hospitals had fewer than 100 beds, versus less than 1 percent of teaching hospitals). Incorporation of a “technology index” measuring the sophistication of clinical programs and technology attenuated or eliminated the teaching hospital advantage for many groups measured. Regardless of the size of advantage, the article just begins to scratch the surface of the most important question—why are outcomes better in teaching hospitals? Understanding the drivers (which may include better practice standards, improved provider oversight, and a larger care team bolstered by trainees, in addition to size and sophistication) is critical to creating policies that favor the highest-value care sites, irrespective of academic affiliation.
Worrisome shenanigans in rural healthcare
A few weeks ago in the Weekly Gist, we highlighted growing concerns over the questionable motives of lab testing companies holding themselves out as acquirers-of-last-resort for struggling rural hospitals. These companies use the favorable billing terms of rural hospitals to charge higher rates for lab tests—even those performed for patients far away from the hospital itself. This week, we read a great piece in the Atlantic, written by Kaiser Health News reporter Barbara Feder Ostrov, that tells the story of one such rural facility that was burned once by one of these outfits, just to turn around and enter into discussions with another. The hospital in question is Surprise Valley Community Hospital, a 26-bed facility that serves several tiny farming and ranching communities in far northeastern California. The communities rely on the hospital for critical services, with the next nearest emergency room a 25-mile drive away, over a mountain pass. The hospital is in dire financial shape, and has been plagued by poor management and unsophisticated governance—not an uncommon situation for rural hospitals to find themselves in.
Surprise Valley has been in discussions with a Colorado-based lab testing entrepreneur, who promised them a financial turnaround based on his plan to bill for telemedicine and remote lab at the relatively-rich reimbursement rates available to rural providers. And even though locals have seen this movie before—having entered into a similar deal last year with a Kansas City-based company that then simply vanished into thin air—they still voted by an overwhelming majority this week to approve the new deal. The story underscores the parlous state of rural healthcare in the US, and the bizarre loopholes in our third-party reimbursement system that make this kind of questionable activity legally possible. With rural facilities beginning to close at an alarming rate, it’s well past time for lawmakers to step in and demand change, as Sen. Claire McCaskill (D-MO) has done in her state.
Closely watching a payer-provider antitrust case
A fascinating new blog post on the University of Chicago’s Booth School of Business website caught our attention this week. The post, written by Cleveland State University antitrust scholar Chris Sagers, unpacks the implications of a recent federal court ruling in Rhode Island, with broad implications for how health plans and hospitals negotiate with one another for contract terms. The case was brought by Steward Health System, the growing for-profit hospital operator with operations in the Northeast and other parts of the country, against Blue Cross Blue Shield of Rhode Island (BCBS-RI). In it, Steward alleges that BCBS-RI conspired with Providence, RI-based health system Lifespan and Woonsocket, RI-based physician group Thundermist Health Center to keep Steward from acquiring Landmark Medical Center, also in Woonsocket. In particular, Steward alleges that BCBS-RI violated section 2 of the Sherman Act, by threatening to exclude Landmark from its networks if Steward acquired it. (Steward ultimately abandoned its takeover bid, and Landmark was eventually acquired by for-profit operator Prime Healthcare in 2013.)
The Sherman Act—which protects markets from monopolization—is one of the cornerstones of US antitrust policy, but section 2 cases rarely make it to trial because violations are notoriously difficult to prove. In this instance, the federal judge decided to send the case to trial, to test whether BCBS-RI’s actions constituted “refusal to deal” under the definition of monopoly practices in section 2. As the blog post points out, the kind of negotiating tactic used by BCBS-RI—network exclusion, a common payer tactic in provider negotiations—may just be part of normal rough-and-tumble of marketplace competition. Indeed, BCBS-RI’s own internal documents, revealed in the case, will sound very familiar to those on the front lines of payer-provider strategy. According to attorneys at Manatt Phelps, “Internal BCBS documents revealed that BCBS executives had expressed concern about accountable care organizations (ACOs) and risk-based contracting, which they believed could strip some or all of an insurance company’s traditional functions, and the profits associated with insurance companies bearing risk. BCBS referred to these issues as ‘disintermediation’ and the process of ‘providers becoming payers,’ and viewed them as existential threats. BCBS executives involved in this strategic planning also were directly involved in negotiations with Steward concerning the Landmark contract [emphasis added].”
It’ll be worth watching the upcoming trial closely, along with the inevitable appeals on both sides—this is a case that could make its way to the Supreme Court. The lines between payers and providers are increasingly blurred, yet the exercise of scale-based leverage on both sides to extract favorable terms is still the order of the day in most markets. As both health systems and health plans aggregate share and continue to consolidate, leaders will need to be closely attuned to the antitrust implications of their strategies. The Steward/BCBS-RI case might turn out to be a pivotal moment.