In the not-too-distant past, health care was a local industry. If you saw a doctor, they were likely a solo practitioner. If you went to the hospital, it was probably run by a local religious order or non-profit. Health care leaders and board members shopped at the same stores as their patients did, socialized in the same community groups, and sent their children to the same schools. Today, though, health care is Big Business. Most physicians are employed by a large group practice, which may be owned by a health system, national insurance company, or private equity fund. Most local hospitals are part of multi-state health systems. These parent companies may have investors across the country or even around the world. Most health plans (outside of traditional Medicare and Medicaid) are administered by large publicly traded companies. All these changes have made health care less personal, less responsive, and less accountable to patients and communities. It doesn’t have to be like this.
Outside of health care, many types of businesses tend to remain small and local. Most eateries, from coffee shops to high-end restaurants, are locally owned, catering to the majority of diners who prefer local flavor to national standardization. Law firms specializing in criminal defense, family law, and personal bankruptcy tend to be local. Even local bookstores seem to be making a comeback. In the public sector, police departments, schools, and libraries are mostly run at the city or county level. What all these examples have in common is responsiveness to the preferences, values, and needs of communities. Health care is no different. Picture a hospital deciding whether to retain or close a money-losing emergency room or obstetrics unit. Or deciding between an underserved low-income neighborhood versus a wealthy suburb for their next expansion. Or how much to pay their CEO. Now, picture a health insurer deciding whether to tighten or loosen their rate of denied claims. Today, these decisions are made on financial spreadsheets by executives who live far from the affected community and who won’t have to defend their decisions to affected friends, neighbors, and civic leaders. Their loyalty is to shareholders, not to patients and communities.
The standard arguments in favor of ever-larger health care organizations don’t stand up to scrutiny. The first is the claim that larger organizations are more efficient due to economies of scale. But in U.S. health care, the primary source of inefficiency is administrative bloat, a.k.a. bureaucracy. The number of health care administrators has ballooned over the years in conjunction with the trend toward ever-larger organizations. This is less efficiency, not more. There are now an estimated ten administrative workers for each physician in the U.S., while healthcare cost inflation continues unabated. If either health systems or health plans have actually achieved any scale-based efficiencies, then it’s clear they haven’t passed them on to employer groups or patients.
The second argument is that large organizations supposedly deliver better quality through coordination of care. Multiple studies have questioned, however, whether hospital consolidation generally leads to improved quality. This shouldn’t be surprising. The most powerful structure for coordinating care is not a care management office located at the health system or health plan headquarters but rather a primary care medical home staffed by clinicians who know their patients well.
The final argument for increased organizational size, which is, in fact, the main actual business driver of consolidation, is negotiating leverage. Hospital systems and physician practices grow in order to gain more leverage over each other and over insurance companies in negotiating rates. Health plans, of course, grow and consolidate in response. It’s a financial arms race that increases costs for patients and employers while adding no net value to the overall system. A 2016 study from the National Bureau of Economic Research found that within-state hospital mergers resulted in a 7 to 10 percent increase in prices. Other studies have shown that health plan consolidation likewise leads to higher prices in the form of increased premiums to employers and consumers.
Could it actually be possible to reverse the trend toward health care mega-corporations? Yes. Keep in mind that much of health care and insurance law exists at the state and local levels rather than just the federal level. Just as states control medical licensing, state laws could require some form of local ownership or control over health systems, medical practices, and health plans. National-scale health plans and provider organizations could, in principle, be broken up or, alternatively, could be required to operate separate subsidiary local entities that, in turn, are required to be responsive to each local community through some form of licensing. All of which wouldn’t be trivial but is entirely possible at the level of an individual state. The problem of unequal negotiating leverage is also potentially solvable. In Germany, for example, 110 different sickness funds negotiate with hospitals and regional physician associations within a system that attenuates the need for any one entity to be larger than its adversaries.
Health care is not a technological commodity. When it balloons in scale, it neither improves its quality nor lowers its price. Rather, health care is a deeply personal service, full of complex cost and quality trade-offs that are best worked out at a community level by health care leaders who are deeply tied to those same communities. Health is local, and health care organizations need to be locally accountable to the communities they serve.
Brian R. Jackson is a pathologist. Paul R. DeMuro is an attorney.
