Hospitals plot the end of insurance companies
By Rob Garver
The Fiscal Times, March 27, 2014
At The Atlantic’s Health Care Forum in Washington on Thursday [March 27], health care and business professionals said that there’s an increasing trend in the industry toward cutting insurance companies out of the process entirely, as large, regional hospital systems move into the insurance business.
Dr. Kenneth L. Davis, CEO and president of Mount Sinai Health System, the largest health care provider in the state of New York, said that starting next year, Mt. Sinai will begin offering its own Medicare Advantage plan. It will look for other opportunities to bring premium payments directly into the hospital system, rather than filtering them through insurance companies.
Davis said he expects organizations similar to his to move in the same direction. “Inevitably the large systems are going to move to take part of the premium dollar,” he said.
For both non-profit systems like Mt. Sinai and for-profit systems, he said, retaining more and more of the health care premiums paid by consumers is essential to providing a full spectrum of care. He said that his system’s St. Luke’s Hospital in New York runs a psychiatric program that loses $14 million per year. It’s “not sustainable,” he said, so the system needs to cross-subsidize the money-losing services that it nonetheless must continue to provide, with income from more profitable services, such as orthopedic surgery.
http://www.thefiscaltimes.com/Articles/2014/03/27/Hospitals-Plot-End-Insurance-Companies
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Comment:
By Kip Sullivan, JD
The media is doing a good job of telling the public that consolidation within the hospital industry accelerated dramatically after the Affordable Care Act was enacted. The media is doing a terrible job of explaining why.
The flabbiness of managed-care speak is part of the problem. So too is the tendency of merger partners in all sectors of the economy to feign disinterest in market power and to claim their merger was motivated only by a desire for greater efficiency. These problems were on display during a recent interview of Dr. Kenneth Davis, CEO of Mount Sinai Health System (an enormous hospital-clinic chain), by Corby Kummer, a senior editor for the Atlantic. http://www.theatlantic.com/live/events/health-care-forum/2014/
The Fiscal Times summary of that interview, quoted above, accurately portrays what Davis said. He mentioned two motives for his recent acquisition of other hospitals: (1) to ensure that services that lose money for Mt. Sinai, such as pediatrics, psychiatry, and obstetrics, are cross-subsidized by money-making services such as orthopedics; and (2) to create an entity large enough to bear insurance risk. But Dr. Davis failed to explain why Mt. Sinai should have to cross-subsidize anything or bear any insurance risk, and Mr. Kummer’s vague questions failed to clarify Dr. Davis’s opaque remarks.
Dr. Davis was one of several experts convened on March 27 by The Atlantic for a forum on “fundamental questions underlying” the Affordable Care Act. Mr. Kummer began the interview with this gentle question: “How should people be viewing… the size of these health care systems?”
Dr. Davis first replied with his cross-subsidization argument. He claimed cross-subsidization was possible only “in an integrated health care system” that can create “efficiencies both in clinical care and corporate infrastructure.” He said the Roosevelt Hospital was going to become a “real mecca for orthopedics,” and that in turn would make adequate financing of underfunded services possible.
Note the unspoken, undocumented assumptions lurking under these statements, including:
- Control of numerous hospitals and clinics by a single corporation results in “efficiencies;”
- Mt. Sinai’s management, not society through its government, should decide how much doctors should be paid, and
- Mt. Sinai should seize the power to do that by gobbling up other providers.
Some version of the second question did enter Mr. Kummer’s mind, but he couldn’t figure out how to pose it. “Is one way of bending the cost curve trying to equalize that hierarchy of reimbursement, or is that just too much to hope for?” he finally blurted out. Davis dodged the question (see Davis’s answer at 5:30 into the interview).
Rather than rephrase his question, Kummer raised another subject. He asked Davis if Mt. Sinai intended to start its own insurance company. Davis said it wasn’t clear yet whether Mt. Sinai would create an insurance company in partnership with an existing insurer or “with our own license,” but he had no doubt Mt. Sinai would become an insurance company.
Rather than question why hospitals should be branching into the insurance business, Kummer asked: “Does the Affordable Care Act make it easier for you to think in terms of offering this product?”
“No, it’s the macroeconomics of health care that is forcing this,” Davis replied. “It’s large systems coming together that are large enough to take actuarial risk…. You need a certain size and scale to be able to take risk.”
Can you imagine a more abstract answer? Some force majeure was making Davis build an empire so he could “take actuarial risk.” Kummer bought it.
A good interview would have helped listeners understand the policies that have triggered periodic spasms of merger fever in our health care system, and the arguments for and against letting those policies persist. The most important cause of the rapid consolidation of our health care system is the 40-year-old campaign waged by the powerful managed care movement to blame the fee-for-service method for overuse of health care, and to replace that method with capitation and other methods of forcing doctors and hospitals to bear insurance risk. The zenith of this campaign was reached in March 2010 with the enactment of the Affordable Care Act. This campaign conveniently ignores the role of high administrative costs inflicted on the system by our multiple-payer system and by managed care itself.
The media occasionally drops a hint that the attack on fee-for-service is the original cause in the chain of causes leading to merger fever. For example, the New York Times article on Mt. Sinai’s merger with Continuum Health Partners last year quoted Richard Ravitch, a member of Mt. Sinai’s board, saying: “‘The fee-for-service system is going to be history shortly,” it will be replaced with a system of “bundled payments” that shift insurance risk to hospitals, and to handle that new system hospitals will “need a population that’s larger than what any one [hospital] has … today.” http://www.nytimes.com/2013/07/17/nyregion/2-hospital-networks-agree-to-merge-raising-specter-of-costlier-care.html
But the article made no effort to explain why the fee-for-service method should be terminated, why a system of “bundled payments” would be better, and who is promoting these notions. The nation badly needs the mainstream media to connect the dots between the demonization of fee-for-service and the latest merger spasm in our health care system.
The dots could be connected quite simply, as follows:
- Managed care advocates, including leaders of both political parties, think overuse is the cause of our health care crisis, and that overuse is caused by the fee-for-service method;
- The managed care movement’s demonization of fee-for-service and its lionization of shifting risk onto hospitals and doctors means providers must consolidate in order to bear insurance risk.
Once the dots are connected, society can then ask, Is it true that overuse is our main problem and fee-for-service causes it, and if not, is there a better way to solve the health care crisis?
For single-payer advocates, the answer is clear. It makes utterly no sense to replace the existing insurance industry with a hospital-based insurance industry. The existence of multiple, privately controlled insurers is the problem. Shifting control over those insurers from the traditional insurance industry to the hospital industry does not solve that problem. We need one publicly controlled insurer.