14 ms·

When Hospitals Merge to Save Money, Patients Often Pay More

205 points by rafaelc 8y ago

elliekelly 8y ago
My ex-boyfriend was an attorney at UPMC doing M&A. Their business strategy goes something like this: 1. "Rescue" the only small hospital in a rural area through merger or acquisition. The hospital entity is a "non-profit." 2. Over the course of the next year or two ramp up sales of the very much for-profit (and, conveniently, affiliated) health insurance plan, UPMC Health Plan to all major local employers. 3. Once sales of the health insurance plan reach "critical mass" within the community, the "non-profit" hospital becomes out of network, and ridiculously expensive, for all major insurers except one: UPMC Health Plan. 4. Within the year all local employers are basically forced to adopt UPMC Health Plan. 5. UPMC Hospital and UPMC Health Plan rates go up. UPMC Health Plan shareholders rake in the money while a small town goes broke trying to receive adequate healthcare.
- conanbatt 8y ago
  This is a business modell that works only because of the difficulty of opening a new small hospital. Lets remember that any market is subject to the mopolization of consolidation, its barriers to entry that make them sustainable.
  - darawk 8y ago
    Yep. Just to elaborate here: In order to open a new hospital in an area you need to acquire a 'certificate of need'[1]. You know who approves those certificates? The other hospitals in the area. Your competition literally gets to decide whether or not you can compete with them. 1. http://www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx http://www.ncsl.org/research/health/con-certificate-of-need-...
    - koboll 8y ago
      "Certificate of Need (C.O.N.) programs are aimed at restraining health care facility costs and facilitating coordinated planning of new services and facility construction ... The basic assumption underlying CON regulation is that excess capacity stemming from overbuilding of health care facilities results in health care price inflation." Two paragraphs in and I need to stop reading this, I'm getting murderously furious.
      - darawk 8y ago
        Ya, it's kind of incredible. And it's equally incredible how few people seem to know about this. It'd be such an easy thing to fix, and it would substantially improve competition for hospital services. It's completely beyond me why this isn't getting changed.
        aaavl2821 8y ago
        I completely agree. If we had to pick one thing to change to lower healthcare costs in the US, this wouldn't be a bad choice. Hospital costs are by far the largest contributor to US healthcare expenditure at 30%, and when you add in physician costs (since they are increasingly owned by hospitals) that's almost 50% of cost My sort of crazy theory is that there is a behind the scenes lobbying / media battle between pharma, the hospital lobby, and the insurance lobby and that this dictates a lot of the national conversation around healthcare. Because healthcare is so opaque and complex, and because there is so much political energy around healthcare, it is hard for the public to be informed about the facts so they just respond to emotionally driven narratives in the media. Right now pharma is public enemy number one so everyone complains about drug prices even though hospitals are probably just as bad if not worse. Both trade groups spend roughly the same on lobbying although hospitals probably have more "soft" political power bc they are major employers in pretty much every county
        Cd00d 8y ago
        I suspect that FAR more people are paying for prescription pharma than are visiting hospitals. So, it's not totally irrational that pharma is perceived as a greater "enemy" than hospitals even given possibly equivalent price inflation.
    - Spooky23 8y ago
      The reality is that there are way too many hospital beds, which are essentially government institutions sustained by Medicare.
      - darawk 8y ago
        Can you elaborate on that?
        Spooky23 8y ago
        Most populated states have an overage of hospital beds, and anywhere from 40-50% of hospital revenues are from Medicare and 12-16% from Medicaid. It’s pretty obvious when you visit a hospital, very few younger patients are hospitalized. Private insurance makes it very difficult to remain as an inpatient... even a major surgery like a spinal fusion is a 48 hour stay. These institutions are mostly unnecessary and only exist because of their political power and government funding. There are exceptions, especially in rural areas and places in the south where the population of old people has boomed.
        your-nanny 8y ago
        optimizing for expected averagevoccupancy is a good way to fail when facing a region wide medical emergency. excess capacity needs to be there.
        maxerickson 8y ago
        Insurance and public payers have pushed to make more care outpatient or delivered at less intensive facilities. Occupancy rates have declined even as the number of licensed beds has gone down (with population increasing substantially, so the per capita effect is even bigger): https://www.cdc.gov/nchs/data/hus/2015/089.pdf https://www.cdc.gov/nchs/data/hus/2015/089.pdf Especially look at small hospitals, which Medicare pays using a different formula to help keep them open (which isn't a bad thing, it increases access to care for lots of people).
    - maxerickson 8y ago
      At the Federal level it's really Medicare certification that is the stumbling block. Federal certificate of need laws were repealed in the 1980s, shortly after they were first tried. States that don't have CON laws don't particularly have lower healthcare costs than states that do have them.
      - darawk 8y ago
        https://www.mercatus.org/publication/health-spending-reined-in-CON-laws https://www.mercatus.org/publication/health-spending-reined-... Do you disagree with this analysis, or do you just think 3-5% isn't that much?
        maxerickson 8y ago
        A single step that reduces costs by 5% is a good thing to do, but it isn't going to fix costs all by itself.
        darawk 8y ago
        Totally agree. But unfortunately our healthcare system looks like it's going to require the stacking of 50 or so of these 5% fixes.
    - archgoon 8y ago
      However, in the case of UPMC, it's not due to CON, as CON laws aren't in Pennsylvania based on that link.
- mrlatinos 8y ago
  Precisely why government mandated third-party payer plans are a terrible idea.
  - tdb7893 8y ago
    Honest question, why is government mandated the problem here? I don't really understand from the context
    - mrlatinos 8y ago
      The employers were able to get them to "critical mass."
      - smogcutter 8y ago
        In that case wouldn't the alternative be having no insurance at all? How would that help? Edit: I'm taking "government mandated third party payer" to mean something like the ACA mandate. If you meant a government mandated monopoly, then yes that's a terrible idea
        Spooky23 8y ago
        The economics associated with modern healthcare demand consolidation, which basically means local cartels or monopolies for hospitals and health networks.
      - sjg007 8y ago
        Most of the rural hospital income is based on medicare/medicaid.
    - brandonmenc 8y ago
      Because it guarantees customers for a product that - sans compulsion by law - would not have been purchased due to its high price.
      - 8y ago
- Judgmentality 8y ago
  As someone who used to live in Pittsburgh - fuck UPMC. They may do some excellent research and have great doctors, but their business practices are akin to Comcast. So many hidden fees (some of which I suspect would be overturned if taken to court, but that would require a class action lawsuit or someone willing to spend 1000x on lawyers than paying the fees) and just terrible practices as you mentioned. They buy up real estate in bulk and then pay no taxes because they are a non-profit (something that is regularly challenged in court but they just threaten to leave the city they're named after). What's worse is many of the buildings they buy are historic, and they raze them and replace them with cookie-cutter corporate facilities. And as they raise prices and screw over customers their executive suite rake in 7 digit salaries. I believe that running an organization of this size should command large salaries, but they are doing it by fucking over their customers not by providing better healthcare. And since they're the largest employer in the state (and this is in Pennsylvania which includes Philadelphia) they just keep doing this shit. Fuck UPMC. The only other non-profit organization I can think of that is so undeserving of the status is the NFL. We need stronger enforcement against entities that are clearly operating for a profit while reaping the benefits of paying no taxes.
  - jkaplowitz 8y ago
    MLB also doesn't deserve the antitrust exemption it has as a pure accident of judicial history, unlike all other sports leagues. (The exemption was subsequently narrowed by Congress but not eliminated, which MLB effectively argues means they implicitly endorsed the remaining exemption and that any change would need to come from Congress. SCOTUS has upheld the exemption twice on the basis of "we don't want to disrupt things" and has refused reconsideration as recently as this year.)
    - deleted 8y ago
      [deleted]
- amluto 8y ago
  Step 6: solicit donations! https://www.upmc.com/about/support/faq https://www.upmc.com/about/support/faq Out here, it’s Sutter Health. They have a slightly different strategy involving acquiring near-monopoly status and screwing everyone over. It’s gotten so bad that the state is suing to partially break them up. To be somewhat fair to the hospital groups in question, a lot of this is driven by outlandish regulation that makes it hard for independent medical groups to survive.
  - aaavl2821 8y ago
    That regulation favors hospital groups and reinforces their monopolies. Independent physicians who can't deal with the regulations sell out to big hospital groups, who then, enabled by their greater control of physician supply, squeeze insurance companies, who then in turn must squeeze the remaining independent physicians who can't fight back, who then give up and sell to hospitals I think in some ways the ACA empowered monopolies by enabling them to further consolidate physician supply in the guise of integrating data for "population health"
    - mtgx 8y ago
      In some ways? Or by design? After all ACA was always a capitalist form of healthcare.
      - tomohawk 8y ago
        Maybe for a very strained definition of capital. The ACA was essentially written by the big industry insiders that are now benefiting from it. This is cronyism, not capitalism, and is the hallmark of a socialist / regulatory state.
  - sjg007 8y ago
    Sutter is pretty good though, it's nice to have comprehensive care in the same EMR. Kaiser is a competitor too and is actually the model the OP denigrates as UPMC at reasonable costs. Stanford is also very good especially if you actually get sick and need comprehensive care.
- MrMorden 8y ago
  This business model would have a problem with Maryland's all-payer system—hospitals are only allowed one price list; they can't give any individual insurer their own schedule. Of course, being a reasonable idea means it's illegal; Maryland is currently the only state the feds allow to do this, so even if Harrisburg were willing they'd need to go through Washington.
- rb666 8y ago
  It's hilarious, the shit that's allowed in the USA. Glad to be living in a country where capitalism has not taken over everything (yet).
- sodosopa 8y ago
  Not for profit or non-profit? Big difference. A former employer was a smaller not for profit system. They made money but it was nothing like what the corporate hospital companies could do. The place eventually went bankrupt and was purchased by one of the bigger companies. No winners here except the large company.
seibelj 8y ago
Even worse is that some states have legally mandated monopolies that prevent competition from opening up. See this doctor who has to fight in court to allow his clinic to offer MRI's https://www.vox.com/policy-and-politics/2018/7/31/17629526/mri-cost-certificate-of-need-north-carolina-lawsuit https://www.vox.com/policy-and-politics/2018/7/31/17629526/m... New medical schools must be allowed by the American Medical Association, artificially capping the number of doctors minted. This is why it's so difficult to get into medical school - the supply of spaces is constrained, unlike law school, where there is a spot for everyone who applies. Dentists in Maine vehemently opposed allowing dental hygienists with a special kind of license to fill cavities without needing a full DMD. https://www.washingtonpost.com/politics/the-unexpected-political-power-of-dentists/2017/07/01/ee946d56-54f3-11e7-a204-ad706461fa4f_story.html?utm_term=.6ef22f2853d1 https://www.washingtonpost.com/politics/the-unexpected-polit... If we want to fix the medical and legal professions, and by fix I mean make it cheaper, we need to remove the warped incentives caused by the government that prevent natural competition from fixing the issues.
- blakesterz 8y ago
  I see what you're saying there, but I'm not positive artificially capping the number of doctors minted is a terrible idea. Don't we want to make sure only the best and brightest end up being doctors? If there's a spot for everyone who applies to med school, wouldn't that leave us with far more incompetent doctors? There should probably be more doctors, but it doesn't seem wise to lower the bar too far down.
  - seibelj 8y ago
    By that logic, we should artificially cap everything. Why allow just anyone to be a programmer? Don't we only want the best programmers to write our software? Any entrepreneur should be able to open up a licensed medical school. Anyone who graduates should be able to get certified as an MD. This is how markets should work - not capping doctors on the hope that we get "better" ones. Also, I have seen some awful doctors, so I'm not sure the system is working.
    - 8y ago
King-Aaron 8y ago
Man, just imagine having to worry about how much going to the hospital will cost you.
- lucidguppy 8y ago
  Eventually everyone will have to worry. Prices will rise as far as people are willing to pay.
- geodel 8y ago
  Well nothing much to imagine. It's true in most of the world that decent hospital treatment for serious ailment can bankrupt people. Now it is different in some rich european countries. But people here somehow behave as if apart from US one can get top notch hospital care anywhere in world without severe financial consequences. I have seen here many who visit from US singing paeans for excellent healthcare in third world nation like India. It mainly works because 1) Whats very cheap for people in US is still very good amount of money there. 2) Local hospitals there would not dare ripping off Americans as it can cause great reputational harm if that incident ever covered by first world media. However for locals these hospitals behave in absolutely atrocious and corrupt manner. And anyone not in top 5% in wealth pyramid will be ruined financially by treatment expenses.
  - jellicle 8y ago
    Meh, it's the norm in developed nations that medical care will not bankrupt you, period. You can fall off a cliff and break every bone in your body and in any of the green countries here, your out of pocket costs will be minimal: https://www.theatlantic.com/international/archive/2012/06/heres-a-map-of-the-countries-that-provide-universal-health-care-americas-still-not-on-it/259153/ https://www.theatlantic.com/international/archive/2012/06/he... It's not the norm in the undeveloped countries, which admittedly have a lot of population, but is that really the standard the USA wants to compare itself to?
    - elliekelly 8y ago
      Even in Saudi Arabia. The government might chop your hand off for stealing but even they take you to the hospital immediately and you won't go broke when you get the bill.
jihoon796 8y ago
Both the prices and costs of a hospital/clinic are very much politics-driven. And the most infuriating part to all of this is that whether a system does well financially has little to do with patient outcomes or any other metric related to human health. Yes, I understand Goodhart's law ("when a measure becomes a target, it ceases to be a good measure") since it's a common counterpoint used against my argument, but surely there are better metrics to optimize for other than profit? For example, I work closely with a medium-sized reference laboratory, and it's clear to me that they have to take literally every shortcut possible in order to survive. The only reason that they're able compete in the market at all against a LabCorp or a Quest is due to the fact that they have deep political connections (lobbyists, governors, lawyers, etc) - certainly not because they have a better product or have better testing methods (although if you asked them, that's what they'd tell you).
- creaghpatr 8y ago
  >The only reason that they're able compete in the market at all against a LabCorp or a Quest is due to the fact that they have deep political connections (lobbyists, governors, lawyers, etc) - certainly not because they have a better product or have better testing methods (although if you asked them, that's what they'd tell you). Exhibit A: Theranos
ken 8y ago
Patients also (as the article mentions towards the end) get worse results, e.g., in [1] "Higher hospital competition was associated with lower 30-day mortality for three to five of the six study conditions, depending on the choice of competition measure, and this finding was robust to a variety of sensitivity analyses". [1]: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1955358/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1955358/ My local non-profit healthcare org was bought out by a giant conglomerate a couple years ago. They promised prices wouldn't increase. My monthly bill jumped 20%. It boggles my mind that state regulators approved this merger.
atourgates 8y ago
The other side of the story that's not covered here is that when hospitals buy up independent medical groups, patients, insurers and tax payers pay more. In general, if a practice is hospital owned, they're allowed to bill about 2x what an independent provider could for the exact same procedure. My wife is an ophthalmologist in private practice. A couple years back, we were looking at the economics of buying a laser to do a common treatment for patients with glaucoma, called a Selective Laser Trabeculoplasty (SLT). Even with a decent understanding of medical reimbursement models in the United States, I was still kind of shocked by what I found. The laser to perform the procedure costs about $30,000 to purchase. The Medicare allowable for a physician performing the procedure in a standalone surgery center was about $315. There's really no reason that the procedure needs to be performed in a surgery center, and Medicare does let the physician bill about $30 more if they bought a laser for their office, and performed the procedure there. But, at an increase of $30/procedure, you'd have to be doing a ton of SLTs to make buying your own laser financially attractive vs. just using the local surgery center's. Where things get crazy, is in terms of facility fees. If a physician performs an SLT procedure at an ambulatory surgery center, the physician's Medicare allowable is about $315, and the surgery center can bill a separate facility fee of about $290, making the total procedure cost medicare just over $600. If my wife's practice were bought by a hospital tomorrow, and they brought an SLT into her office, every time she performed an SLT in the exact same office that was now hospital owned, they'd be able to bill the $315 physician fee, plus a "hospital outpatient department" (HOPD) facility fee of $443, bringing the total cost of the procedure to over $750. So, to recap the total costs to medicare: Physician does the procedure in their privately owned medical practice: $345 Physician does the procedure in a surgery center: $600 Physician does the procedure in a hospital-owned medical practice: $750 This is why independent medical providers are getting bought up by hospitals and large health systems at an alarming rate. You hear a lot in the healthcare market about the efficiencies of scale, and how large integrated healthcare organizations are doing amazing things. You don't hear a lot about the potential for independent practitioners to reduce costs, but it's absolutely there, and largely ignored.
- aaavl2821 8y ago
  I wish more people talked about this I attended a talk by the president of a major academic hospital system. He talked about how his friends who were independent physicians would call him up and ask him to "save" them. Their practices were failing (probably bc the big academic center was so massive that it crowded out any smaller practices). The big system bought the small one, and overnight the previously independent practice doubled its billing rates. This was a core part of the strategy of the hospital system, as it is for hospital systems nationwide -- buy up small practices and use them as loss leaders to direct patient flow to the hospital profit centers (I've talked to people at these systems who view primary care as a loss leader even after their rates double when they are acquired). Then negotiate higher rates with payers since you control the market There was no talk of benefits of better care coordination or data sharing through integration. Not in this talk or any of the other half dozen similar talks I've been to. "Population health" is a PR play that big hospital systems use to justify monopolistic behavior. And we wonder why healthcare costs are so high
noonespecial 8y ago
Oh, you thought they merged so the patients could save money? Heh. No. Seriously though, as a market moves towards a monopoly, prices increase. How is this a surprise to anyone at all?
- MrMorden 8y ago
  “Are—are you with the Friends of Sleep?” she asks hoarsely. “I told you, we’re from the govern—” Agent Jones begins, just as Agent Smith says, “Yes.” Agent Jones clears his throat. “We are the Friends of the Lord of Sleep, and we’re from the government, and we’re here to help”, he explains. “To help our Lord”, Agent Smith clarifies, “not you.” (The Labyrinth Index, Charles Stross, 2018)
edoo 8y ago
I saw something very interesting the other day. The Surgery Center of Oklahoma doesn't take insurance and they can't charge you if they make a mistake. Their post-op infection rate is 5% the rate of hospitals that get to bill your insurance for the infection you got. That is mind blowing.
- Fomite 8y ago
  It should be noted that you cannot bill Medicare or Medicaid for preventable infections that arise during a hospital stay. I'll also say the statistical adjustment to actually make those infection rates comparable between hospitals is very non-trivial, and hospitals with low rates often tout them in ways I find fairly deceptive.
  - edoo 8y ago
    I think it is worth studying. In regulatory based hospitals there are natural profit incentives that are only gated by the law. The hospital has no incentive to go above and beyond the basic legal requirements for sanitation and won't if there is a profit based incentive not to. Free market solutions where the consumer has strong rights usually leads to superior solutions and their result lines up with the hospital adopting free market methods.
    - Fomite 8y ago
      A couple notes: "The basic legal requirements for sanitation and won't if there is a profit based incentive not to." As I mentioned, there is not really just a 'basic legal requirement for sanitation'. There are significant financial penalties in the form of both uncompensated expenses and genuine cuts to reimbursement rates based on outcomes. "Free market solutions where the consumer has strong rights usually leads to superior solutions and their result lines up with the hospital adopting free market methods." This is not necessarily self-evident. For example, for many quality measures, despite their bad press, the VA outperforms private hospitals. Furthermore, many hospitals like the one mentioned in your original post are able to pick and choose their cases, which very frequently leads to lower rates. I think it's worth studying as well, because it's my career. I am however also noting that you're making a couple false assumptions, and even measuring things like "Does Hospital A have more infections than Hospital B" are deceptively challenging if you actually want the correct answer.
nradov 8y ago
This is just part of a general consolidation trend in the healthcare industry. Payers (insurers and claims administrators) have been merging to gain more negotiating leverage over providers and drive down prices. Providers responded by merging to maintain pricing power. The next step, which is happening now, is payers acquiring provider organizations to have everything under one roof. Essentially the industry is converging on the Kaiser Permanente model.
yuhong 8y ago
Health care is a good example of some of the problems of the current debt-based economy. Charles Hugh Smith mentions insulin as an example.
pasbesoin 8y ago
People are worried about "socialized medicine". In my metropolitan area, almost all doctors are working for one of three very large and expanding private networks. And more and more insurance offers are forcing members to pick a plan serviced by only one of those networks. It may not be "government", but their healthcare is already dictated by a single large and not very transparent nor accountable organization. Where employees aren't worried just about making money, themselves, but also about maximizing "returns" for shareholders.
- InclinedPlane 8y ago
  Indeed, it's hilarious that people are concerned about "socialized medicine" here when we already spend more public money on healthcare for worse benefits that any other developed country. We keep on passing up opportunities to do it right because our politics are so broken (to be clear: intentionally broken by one party who represents a minority of the population).
your-nanny 8y ago
the tend to blame insurers for high medical costs (and hey it's easy not to like them), but the relative size of providers when negotiating prices with insurers is more likely
bookofjoe 8y ago
"When elephants dance, the grass gets trampled."—African proverb

205 points by rafaelc 8y ago

My ex-boyfriend was an attorney at UPMC doing M&A. Their business strategy goes something like this: 1. "Rescue" the only small hospital in a rural area through merger or acquisition. The hospital entity is a "non-profit." 2. Over the course of the next year or two ramp up sales of the very much for-profit (and, conveniently, affiliated) health insurance plan, UPMC Health Plan to all major local employers. 3. Once sales of the health insurance plan reach "critical mass" within the community, the "non-profit" hospital becomes out of network, and ridiculously expensive, for all major insurers except one: UPMC Health Plan. 4. Within the year all local employers are basically forced to adopt UPMC Health Plan. 5. UPMC Hospital and UPMC Health Plan rates go up. UPMC Health Plan shareholders rake in the money while a small town goes broke trying to receive adequate healthcare.

conanbatt 8y ago
This is a business modell that works only because of the difficulty of opening a new small hospital. Lets remember that any market is subject to the mopolization of consolidation, its barriers to entry that make them sustainable.
- darawk 8y ago
  Yep. Just to elaborate here: In order to open a new hospital in an area you need to acquire a 'certificate of need'[1]. You know who approves those certificates? The other hospitals in the area. Your competition literally gets to decide whether or not you can compete with them. 1. http://www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx http://www.ncsl.org/research/health/con-certificate-of-need-...
  - koboll 8y ago
    "Certificate of Need (C.O.N.) programs are aimed at restraining health care facility costs and facilitating coordinated planning of new services and facility construction ... The basic assumption underlying CON regulation is that excess capacity stemming from overbuilding of health care facilities results in health care price inflation." Two paragraphs in and I need to stop reading this, I'm getting murderously furious.
    - darawk 8y ago
      Ya, it's kind of incredible. And it's equally incredible how few people seem to know about this. It'd be such an easy thing to fix, and it would substantially improve competition for hospital services. It's completely beyond me why this isn't getting changed.
      - aaavl2821 8y ago
        I completely agree. If we had to pick one thing to change to lower healthcare costs in the US, this wouldn't be a bad choice. Hospital costs are by far the largest contributor to US healthcare expenditure at 30%, and when you add in physician costs (since they are increasingly owned by hospitals) that's almost 50% of cost My sort of crazy theory is that there is a behind the scenes lobbying / media battle between pharma, the hospital lobby, and the insurance lobby and that this dictates a lot of the national conversation around healthcare. Because healthcare is so opaque and complex, and because there is so much political energy around healthcare, it is hard for the public to be informed about the facts so they just respond to emotionally driven narratives in the media. Right now pharma is public enemy number one so everyone complains about drug prices even though hospitals are probably just as bad if not worse. Both trade groups spend roughly the same on lobbying although hospitals probably have more "soft" political power bc they are major employers in pretty much every county
        Cd00d 8y ago
        I suspect that FAR more people are paying for prescription pharma than are visiting hospitals. So, it's not totally irrational that pharma is perceived as a greater "enemy" than hospitals even given possibly equivalent price inflation.
  - Spooky23 8y ago
    The reality is that there are way too many hospital beds, which are essentially government institutions sustained by Medicare.
    - darawk 8y ago
      Can you elaborate on that?
      - Spooky23 8y ago
        Most populated states have an overage of hospital beds, and anywhere from 40-50% of hospital revenues are from Medicare and 12-16% from Medicaid. It’s pretty obvious when you visit a hospital, very few younger patients are hospitalized. Private insurance makes it very difficult to remain as an inpatient... even a major surgery like a spinal fusion is a 48 hour stay. These institutions are mostly unnecessary and only exist because of their political power and government funding. There are exceptions, especially in rural areas and places in the south where the population of old people has boomed.
        your-nanny 8y ago
        optimizing for expected averagevoccupancy is a good way to fail when facing a region wide medical emergency. excess capacity needs to be there.
      - maxerickson 8y ago
        Insurance and public payers have pushed to make more care outpatient or delivered at less intensive facilities. Occupancy rates have declined even as the number of licensed beds has gone down (with population increasing substantially, so the per capita effect is even bigger): https://www.cdc.gov/nchs/data/hus/2015/089.pdf https://www.cdc.gov/nchs/data/hus/2015/089.pdf Especially look at small hospitals, which Medicare pays using a different formula to help keep them open (which isn't a bad thing, it increases access to care for lots of people).
  - maxerickson 8y ago
    At the Federal level it's really Medicare certification that is the stumbling block. Federal certificate of need laws were repealed in the 1980s, shortly after they were first tried. States that don't have CON laws don't particularly have lower healthcare costs than states that do have them.
    - darawk 8y ago
      https://www.mercatus.org/publication/health-spending-reined-in-CON-laws https://www.mercatus.org/publication/health-spending-reined-... Do you disagree with this analysis, or do you just think 3-5% isn't that much?
      - maxerickson 8y ago
        A single step that reduces costs by 5% is a good thing to do, but it isn't going to fix costs all by itself.
        darawk 8y ago
        Totally agree. But unfortunately our healthcare system looks like it's going to require the stacking of 50 or so of these 5% fixes.
  - archgoon 8y ago
    However, in the case of UPMC, it's not due to CON, as CON laws aren't in Pennsylvania based on that link.
mrlatinos 8y ago
Precisely why government mandated third-party payer plans are a terrible idea.
- tdb7893 8y ago
  Honest question, why is government mandated the problem here? I don't really understand from the context
  - mrlatinos 8y ago
    The employers were able to get them to "critical mass."
    - smogcutter 8y ago
      In that case wouldn't the alternative be having no insurance at all? How would that help? Edit: I'm taking "government mandated third party payer" to mean something like the ACA mandate. If you meant a government mandated monopoly, then yes that's a terrible idea
      - Spooky23 8y ago
        The economics associated with modern healthcare demand consolidation, which basically means local cartels or monopolies for hospitals and health networks.
    - sjg007 8y ago
      Most of the rural hospital income is based on medicare/medicaid.
  - brandonmenc 8y ago
    Because it guarantees customers for a product that - sans compulsion by law - would not have been purchased due to its high price.
    - 8y ago
Judgmentality 8y ago
As someone who used to live in Pittsburgh - fuck UPMC. They may do some excellent research and have great doctors, but their business practices are akin to Comcast. So many hidden fees (some of which I suspect would be overturned if taken to court, but that would require a class action lawsuit or someone willing to spend 1000x on lawyers than paying the fees) and just terrible practices as you mentioned. They buy up real estate in bulk and then pay no taxes because they are a non-profit (something that is regularly challenged in court but they just threaten to leave the city they're named after). What's worse is many of the buildings they buy are historic, and they raze them and replace them with cookie-cutter corporate facilities. And as they raise prices and screw over customers their executive suite rake in 7 digit salaries. I believe that running an organization of this size should command large salaries, but they are doing it by fucking over their customers not by providing better healthcare. And since they're the largest employer in the state (and this is in Pennsylvania which includes Philadelphia) they just keep doing this shit. Fuck UPMC. The only other non-profit organization I can think of that is so undeserving of the status is the NFL. We need stronger enforcement against entities that are clearly operating for a profit while reaping the benefits of paying no taxes.
- jkaplowitz 8y ago
  MLB also doesn't deserve the antitrust exemption it has as a pure accident of judicial history, unlike all other sports leagues. (The exemption was subsequently narrowed by Congress but not eliminated, which MLB effectively argues means they implicitly endorsed the remaining exemption and that any change would need to come from Congress. SCOTUS has upheld the exemption twice on the basis of "we don't want to disrupt things" and has refused reconsideration as recently as this year.)
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amluto 8y ago
Step 6: solicit donations! https://www.upmc.com/about/support/faq https://www.upmc.com/about/support/faq Out here, it’s Sutter Health. They have a slightly different strategy involving acquiring near-monopoly status and screwing everyone over. It’s gotten so bad that the state is suing to partially break them up. To be somewhat fair to the hospital groups in question, a lot of this is driven by outlandish regulation that makes it hard for independent medical groups to survive.
- aaavl2821 8y ago
  That regulation favors hospital groups and reinforces their monopolies. Independent physicians who can't deal with the regulations sell out to big hospital groups, who then, enabled by their greater control of physician supply, squeeze insurance companies, who then in turn must squeeze the remaining independent physicians who can't fight back, who then give up and sell to hospitals I think in some ways the ACA empowered monopolies by enabling them to further consolidate physician supply in the guise of integrating data for "population health"
  - mtgx 8y ago
    In some ways? Or by design? After all ACA was always a capitalist form of healthcare.
    - tomohawk 8y ago
      Maybe for a very strained definition of capital. The ACA was essentially written by the big industry insiders that are now benefiting from it. This is cronyism, not capitalism, and is the hallmark of a socialist / regulatory state.
- sjg007 8y ago
  Sutter is pretty good though, it's nice to have comprehensive care in the same EMR. Kaiser is a competitor too and is actually the model the OP denigrates as UPMC at reasonable costs. Stanford is also very good especially if you actually get sick and need comprehensive care.
MrMorden 8y ago
This business model would have a problem with Maryland's all-payer system—hospitals are only allowed one price list; they can't give any individual insurer their own schedule. Of course, being a reasonable idea means it's illegal; Maryland is currently the only state the feds allow to do this, so even if Harrisburg were willing they'd need to go through Washington.
rb666 8y ago
It's hilarious, the shit that's allowed in the USA. Glad to be living in a country where capitalism has not taken over everything (yet).
sodosopa 8y ago
Not for profit or non-profit? Big difference. A former employer was a smaller not for profit system. They made money but it was nothing like what the corporate hospital companies could do. The place eventually went bankrupt and was purchased by one of the bigger companies. No winners here except the large company.

seibelj 8y ago

Even worse is that some states have legally mandated monopolies that prevent competition from opening up. See this doctor who has to fight in court to allow his clinic to offer MRI's https://www.vox.com/policy-and-politics/2018/7/31/17629526/mri-cost-certificate-of-need-north-carolina-lawsuit https://www.vox.com/policy-and-politics/2018/7/31/17629526/m... New medical schools must be allowed by the American Medical Association, artificially capping the number of doctors minted. This is why it's so difficult to get into medical school - the supply of spaces is constrained, unlike law school, where there is a spot for everyone who applies. Dentists in Maine vehemently opposed allowing dental hygienists with a special kind of license to fill cavities without needing a full DMD. https://www.washingtonpost.com/politics/the-unexpected-political-power-of-dentists/2017/07/01/ee946d56-54f3-11e7-a204-ad706461fa4f_story.html?utm_term=.6ef22f2853d1 https://www.washingtonpost.com/politics/the-unexpected-polit... If we want to fix the medical and legal professions, and by fix I mean make it cheaper, we need to remove the warped incentives caused by the government that prevent natural competition from fixing the issues.

blakesterz 8y ago
I see what you're saying there, but I'm not positive artificially capping the number of doctors minted is a terrible idea. Don't we want to make sure only the best and brightest end up being doctors? If there's a spot for everyone who applies to med school, wouldn't that leave us with far more incompetent doctors? There should probably be more doctors, but it doesn't seem wise to lower the bar too far down.
- seibelj 8y ago
  By that logic, we should artificially cap everything. Why allow just anyone to be a programmer? Don't we only want the best programmers to write our software? Any entrepreneur should be able to open up a licensed medical school. Anyone who graduates should be able to get certified as an MD. This is how markets should work - not capping doctors on the hope that we get "better" ones. Also, I have seen some awful doctors, so I'm not sure the system is working.
  - 8y ago

King-Aaron 8y ago

Man, just imagine having to worry about how much going to the hospital will cost you.

lucidguppy 8y ago
Eventually everyone will have to worry. Prices will rise as far as people are willing to pay.
geodel 8y ago
Well nothing much to imagine. It's true in most of the world that decent hospital treatment for serious ailment can bankrupt people. Now it is different in some rich european countries. But people here somehow behave as if apart from US one can get top notch hospital care anywhere in world without severe financial consequences. I have seen here many who visit from US singing paeans for excellent healthcare in third world nation like India. It mainly works because 1) Whats very cheap for people in US is still very good amount of money there. 2) Local hospitals there would not dare ripping off Americans as it can cause great reputational harm if that incident ever covered by first world media. However for locals these hospitals behave in absolutely atrocious and corrupt manner. And anyone not in top 5% in wealth pyramid will be ruined financially by treatment expenses.
- jellicle 8y ago
  Meh, it's the norm in developed nations that medical care will not bankrupt you, period. You can fall off a cliff and break every bone in your body and in any of the green countries here, your out of pocket costs will be minimal: https://www.theatlantic.com/international/archive/2012/06/heres-a-map-of-the-countries-that-provide-universal-health-care-americas-still-not-on-it/259153/ https://www.theatlantic.com/international/archive/2012/06/he... It's not the norm in the undeveloped countries, which admittedly have a lot of population, but is that really the standard the USA wants to compare itself to?
  - elliekelly 8y ago
    Even in Saudi Arabia. The government might chop your hand off for stealing but even they take you to the hospital immediately and you won't go broke when you get the bill.

jihoon796 8y ago

Both the prices and costs of a hospital/clinic are very much politics-driven. And the most infuriating part to all of this is that whether a system does well financially has little to do with patient outcomes or any other metric related to human health. Yes, I understand Goodhart's law ("when a measure becomes a target, it ceases to be a good measure") since it's a common counterpoint used against my argument, but surely there are better metrics to optimize for other than profit? For example, I work closely with a medium-sized reference laboratory, and it's clear to me that they have to take literally every shortcut possible in order to survive. The only reason that they're able compete in the market at all against a LabCorp or a Quest is due to the fact that they have deep political connections (lobbyists, governors, lawyers, etc) - certainly not because they have a better product or have better testing methods (although if you asked them, that's what they'd tell you).

creaghpatr 8y ago
>The only reason that they're able compete in the market at all against a LabCorp or a Quest is due to the fact that they have deep political connections (lobbyists, governors, lawyers, etc) - certainly not because they have a better product or have better testing methods (although if you asked them, that's what they'd tell you). Exhibit A: Theranos

ken 8y ago

Patients also (as the article mentions towards the end) get worse results, e.g., in [1] "Higher hospital competition was associated with lower 30-day mortality for three to five of the six study conditions, depending on the choice of competition measure, and this finding was robust to a variety of sensitivity analyses". [1]: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1955358/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1955358/ My local non-profit healthcare org was bought out by a giant conglomerate a couple years ago. They promised prices wouldn't increase. My monthly bill jumped 20%. It boggles my mind that state regulators approved this merger.

atourgates 8y ago

The other side of the story that's not covered here is that when hospitals buy up independent medical groups, patients, insurers and tax payers pay more. In general, if a practice is hospital owned, they're allowed to bill about 2x what an independent provider could for the exact same procedure. My wife is an ophthalmologist in private practice. A couple years back, we were looking at the economics of buying a laser to do a common treatment for patients with glaucoma, called a Selective Laser Trabeculoplasty (SLT). Even with a decent understanding of medical reimbursement models in the United States, I was still kind of shocked by what I found. The laser to perform the procedure costs about $30,000 to purchase. The Medicare allowable for a physician performing the procedure in a standalone surgery center was about $315. There's really no reason that the procedure needs to be performed in a surgery center, and Medicare does let the physician bill about $30 more if they bought a laser for their office, and performed the procedure there. But, at an increase of $30/procedure, you'd have to be doing a ton of SLTs to make buying your own laser financially attractive vs. just using the local surgery center's. Where things get crazy, is in terms of facility fees. If a physician performs an SLT procedure at an ambulatory surgery center, the physician's Medicare allowable is about $315, and the surgery center can bill a separate facility fee of about $290, making the total procedure cost medicare just over $600. If my wife's practice were bought by a hospital tomorrow, and they brought an SLT into her office, every time she performed an SLT in the exact same office that was now hospital owned, they'd be able to bill the $315 physician fee, plus a "hospital outpatient department" (HOPD) facility fee of $443, bringing the total cost of the procedure to over $750. So, to recap the total costs to medicare: Physician does the procedure in their privately owned medical practice: $345 Physician does the procedure in a surgery center: $600 Physician does the procedure in a hospital-owned medical practice: $750 This is why independent medical providers are getting bought up by hospitals and large health systems at an alarming rate. You hear a lot in the healthcare market about the efficiencies of scale, and how large integrated healthcare organizations are doing amazing things. You don't hear a lot about the potential for independent practitioners to reduce costs, but it's absolutely there, and largely ignored.

aaavl2821 8y ago
I wish more people talked about this I attended a talk by the president of a major academic hospital system. He talked about how his friends who were independent physicians would call him up and ask him to "save" them. Their practices were failing (probably bc the big academic center was so massive that it crowded out any smaller practices). The big system bought the small one, and overnight the previously independent practice doubled its billing rates. This was a core part of the strategy of the hospital system, as it is for hospital systems nationwide -- buy up small practices and use them as loss leaders to direct patient flow to the hospital profit centers (I've talked to people at these systems who view primary care as a loss leader even after their rates double when they are acquired). Then negotiate higher rates with payers since you control the market There was no talk of benefits of better care coordination or data sharing through integration. Not in this talk or any of the other half dozen similar talks I've been to. "Population health" is a PR play that big hospital systems use to justify monopolistic behavior. And we wonder why healthcare costs are so high

noonespecial 8y ago

Oh, you thought they merged so the patients could save money? Heh. No. Seriously though, as a market moves towards a monopoly, prices increase. How is this a surprise to anyone at all?

MrMorden 8y ago
“Are—are you with the Friends of Sleep?” she asks hoarsely. “I told you, we’re from the govern—” Agent Jones begins, just as Agent Smith says, “Yes.” Agent Jones clears his throat. “We are the Friends of the Lord of Sleep, and we’re from the government, and we’re here to help”, he explains. “To help our Lord”, Agent Smith clarifies, “not you.” (The Labyrinth Index, Charles Stross, 2018)

edoo 8y ago

I saw something very interesting the other day. The Surgery Center of Oklahoma doesn't take insurance and they can't charge you if they make a mistake. Their post-op infection rate is 5% the rate of hospitals that get to bill your insurance for the infection you got. That is mind blowing.

Fomite 8y ago
It should be noted that you cannot bill Medicare or Medicaid for preventable infections that arise during a hospital stay. I'll also say the statistical adjustment to actually make those infection rates comparable between hospitals is very non-trivial, and hospitals with low rates often tout them in ways I find fairly deceptive.
- edoo 8y ago
  I think it is worth studying. In regulatory based hospitals there are natural profit incentives that are only gated by the law. The hospital has no incentive to go above and beyond the basic legal requirements for sanitation and won't if there is a profit based incentive not to. Free market solutions where the consumer has strong rights usually leads to superior solutions and their result lines up with the hospital adopting free market methods.
  - Fomite 8y ago
    A couple notes: "The basic legal requirements for sanitation and won't if there is a profit based incentive not to." As I mentioned, there is not really just a 'basic legal requirement for sanitation'. There are significant financial penalties in the form of both uncompensated expenses and genuine cuts to reimbursement rates based on outcomes. "Free market solutions where the consumer has strong rights usually leads to superior solutions and their result lines up with the hospital adopting free market methods." This is not necessarily self-evident. For example, for many quality measures, despite their bad press, the VA outperforms private hospitals. Furthermore, many hospitals like the one mentioned in your original post are able to pick and choose their cases, which very frequently leads to lower rates. I think it's worth studying as well, because it's my career. I am however also noting that you're making a couple false assumptions, and even measuring things like "Does Hospital A have more infections than Hospital B" are deceptively challenging if you actually want the correct answer.

nradov 8y ago

This is just part of a general consolidation trend in the healthcare industry. Payers (insurers and claims administrators) have been merging to gain more negotiating leverage over providers and drive down prices. Providers responded by merging to maintain pricing power. The next step, which is happening now, is payers acquiring provider organizations to have everything under one roof. Essentially the industry is converging on the Kaiser Permanente model.

yuhong 8y ago

Health care is a good example of some of the problems of the current debt-based economy. Charles Hugh Smith mentions insulin as an example.

pasbesoin 8y ago

People are worried about "socialized medicine". In my metropolitan area, almost all doctors are working for one of three very large and expanding private networks. And more and more insurance offers are forcing members to pick a plan serviced by only one of those networks. It may not be "government", but their healthcare is already dictated by a single large and not very transparent nor accountable organization. Where employees aren't worried just about making money, themselves, but also about maximizing "returns" for shareholders.

InclinedPlane 8y ago
Indeed, it's hilarious that people are concerned about "socialized medicine" here when we already spend more public money on healthcare for worse benefits that any other developed country. We keep on passing up opportunities to do it right because our politics are so broken (to be clear: intentionally broken by one party who represents a minority of the population).

your-nanny 8y ago

the tend to blame insurers for high medical costs (and hey it's easy not to like them), but the relative size of providers when negotiating prices with insurers is more likely

bookofjoe 8y ago

"When elephants dance, the grass gets trampled."—African proverb