America's Bitter Pill

by Steven Brill

  But I also got more. New York–Presbyterian has a board of financial, business, and civic luminaries, and Corwin provided a detailed explanation of how the board sets bonuses, which typically account for about half of each executive’s overall income.

  The bonuses were awarded according to a meticulous set of metrics. Importantly, only 35 percent of these benchmarks had to do with the financial results of the hospital, a portion that was unusually low compared to other ostensibly nonprofit, high-revenue hospitals whose bonus criteria I had looked at. Most nonprofit boards talked a lot about quality and patient satisfaction in explaining their compensation practices on their annual IRS filings, but rewarded the bosses based mostly on the dollars.

  At New York–Presbyterian, another 40 percent was based on the results of an elaborate satisfaction survey given to all patients. And 25 percent was based on a menu of quality metrics, such as rates of infection, mortality, or readmission of discharged patients.

  “This is not a board that sets easy goals,” one board member later told me. “We set them so they never hit 100 percent.” The same board member added that a quality control committee of the board met every month to review any untoward incidents, to go over all the quality metrics for the month, and to hear presentations from different practice units of the hospital.

  It seemed that these people hadn’t saved my life casually. The people on the top, the ones with the million-dollar incomes, were incented, at least according to the board’s documented criteria, to worry as much about patients like me as the phlebotomist or my surgeon did.

  In fact, Corwin and Kelly—who had each continued to practice part-time while they worked their way up through management—insisted that that was the point. They told me that they thought it essential that people running a hospital be doctors first and, to some degree, keep being doctors so that they didn’t lose that grounding.

  LET THE FOXES RUN THE HENHOUSE—WITH CONDITIONS

  As I was leaving Corwin’s office, my idea for how to fix Obamacare and American healthcare gelled: Let these guys loose. Give the most ambitious, expansion-minded foxes responsible for the chargemaster even more free rein to run the henhouse—but with lots of conditions.

  Several months before, when I had spoken on a panel with two other impressive doctor-CEOs running two other prestigious medical organizations, I had begun toying with the same thought.

  One of the panelists was Glenn Steele, Jr., a former cancer surgeon and professor at Harvard Medical School who runs the multi-facility Geisinger Health System in central and northeastern Pennsylvania. Geisinger is famous for charging a flat price for various categories of diseases. Its doctors are all employed by the hospital. With the flat-rate system, Steele explained, they have no incentive to pile on unnecessary care or tests. They got paid based on quality metrics, not the number of times they see a patient or read an x-ray.

  Most important, while allowing itself to be in the network of several insurers, Geisinger also had its own insurance plans. Pay Geisinger for insurance and you get Geisinger care for whatever you need.

  As with the few healthcare providers that are similarly organized around the country, Geisinger was thought to be an outlier that succeeded because its base was in a relatively remote area with less than the usual competition.

  The other panelist I met that day was Gary Gottlieb. He had no such geographic cushion. Gottlieb runs Partners HealthCare in Boston and Cambridge. Like New York–Presbyterian, Partners had been formed by the merger of the area’s two most highly reputed hospital brands, both of which were affiliated with Harvard Medical School: Brigham and Women’s Hospital and Massachusetts General.

  When I had coffee with Gottlieb the morning before the panel, he described experimental contracts he had signed with Blue Cross Blue Shield in Boston. For a portion of the insurance company’s population, Partners would take the risk that it could cut costs while maintaining quality.

  Under a complicated formula, a certain amount would be designated to cover that patient population. If Partners’ hospitals, labs, and doctors provided the care for less, it would share in the savings—but only if it also met a specified set of quality metrics. If the baseline quality metrics were exceeded, Partners’ share of the savings would be increased. If Partners ended up spending more, it would eat the excess, though less so if the quality benchmarks were exceeded.

  That seemed like a significant step forward, one that Gottlieb attributed in part to the fact that these kinds of experiments covering private insurance patients had been inspired by Obamacare’s own similarly structured pilot programs involving Medicare patients. “There are a lot of problems with Obamacare,” Gottlieb told me. “But the attention it focused, at least in the industry, on costs with those pilots, has made a lot of us realize that we have to change how we operate.”

  Gottlieb, who was paid $3.5 million in 2012, ran a system with more than $10 billion in revenues that, to the dismay of some consumer advocates, had kept swallowing up other hospitals, doctors’ practices, and outpatient clinics. Yet Gottlieb seemed, like Steele of Geisinger, to be potentially more a part of the solution than the problem. He, too, had started as a doctor. In fact, his practice specialty had been psychiatry for geriatrics. How coldhearted could someone be who went to medical school to provide that kind of care?

  However, when it came to consumer protection, Gottlieb’s view of the world was complicated by more than the consumer advocates’ suspicion that he was trying to gobble up the market. Unlike conventional healthcare reformers, Gottlieb saw price transparency—the apple pie of healthcare reform—as having a downside. He explained to me that if, as was the transparency movement’s basic goal, a patient could readily see that his charge for a colonoscopy, an x-ray, or even an outpatient surgical procedure would be much less at the clinic across the street than at Gottlieb’s hospital, the patient would likely decide to go there, or his insurance company would make him go there. Gottlieb would then lose those profits, which, he said, supported the other, unprofitable types of care, such as mental health treatment, that he had to provide.

  “I’ll compete with anyone on cost and quality, if you give me the whole patient,” he told me. “But if the patient can pick and choose what he buys from me, à la carte, my business collapses.

  “People with hip replacements also have dementia,” he added. “Someone with heart disease not taking his medication might also be depressed. We want to compete on how well we treat that whole patient.”

  The CEO of a giant hospital system was claiming he would be happy to compete on how well he treated the “whole patient.” That had a nice ring to it.

  At another event, I had been intrigued by a third doctor/hospital leader: Delos “Toby” Cosgrove, the CEO of the Cleveland Clinic, the hospital system that dominated Ohio and had such a good reputation that patients traveled there from all over the world.

  Cosgrove had been a celebrated heart surgeon; in fact, he was a trailblazer in perfecting the operation I had just undergone. He had performed more than twenty-two thousand cardiac surgeries, and had built the Cleveland Clinic’s heart program into one of the world’s best. Along the way he had patented thirty products used in thoracic surgery.

  When Cosgrove was, he told me, “plucked from the operating room” to become CEO of Cleveland Clinic in 2004 because of his success running the cardiac program, “I knew nothing about business.” By now, he was regarded as one of the savviest hospital executives in the world, widely admired for the way he ran what he had propelled into a $6 billion, seventy-five-facility enterprise.

  I had watched Cosgrove at a program about healthcare reform blanch when another panelist implied that he dominated his market too much. “Not possible,” he had said. “If we expand too much the FTC will be all over us.”

  Should the Federal Trade Commission really want to stop a guy like Cosgrove from dominating healthcare in Cleveland, I wondered.

  But then I remembered Jeffrey Romoff, the CEO of the U
niversity of Pittsburgh Medical Center (UPMC), who had been enmeshed in all of that litigation over whether he had conspired to control his market. Romoff truly did dominate healthcare in Pittsburgh and, he had told me, saw any attempts to hold him back as “impediments” he needed to overcome.

  By now, UPMC had settled its litigation with, and was about to complete its divorce from, Highmark Insurance—the Blue Cross Blue Shield company it had been accused of conspiring with to control the provider and insurance markets respectively in western Pennsylvania.

  Through 2014, UPMC was filling the Pittsburgh area airwaves and every billboard not already taken by Highmark touting its own insurance company as the one that patients could use to get full access to its facilities—because, beginning in 2015, UPMC would no longer recognize Highmark Insurance.

  Romoff was playing hardball and winning.

  At the same time, UPMC was fighting a lawsuit from the city of Pittsburgh that might have embarrassed other hospital executives. The city charged that the hospital system’s prices and profits were so high and its salaries, including Romoff’s (which by now was more than $5 million), were so exorbitant that it did not deserve nonprofit tax-exempt status and should, therefore, be subject to the city’s payroll tax. That would mean a lot to Pittsburgh because UPMC was Pennsylvania’s biggest non-government employer.

  UPMC’s first defense was that it didn’t actually have any employees; only its subsidiaries did. By the summer of 2014, a state judge would agree. He dismissed the case, though the city would be allowed to file the same action against the various subsidiary hospitals. Nonetheless, the suit had highlighted UPMC’s status as perhaps the world’s most tough-minded, profit-oriented nonprofit.

  So, to put it charitably, Romoff didn’t seem to be the kind of hospital leader that Drs. Corwin, Steele, Gottlieb, and Cosgrove were.

  Yet it was when I went to see Romoff (once I was able to travel) that the idea I had begun playing with after those talks with Corwin and the other doctor-executives became fully formed.

  Sitting in front of a window in his suite atop the U.S. Steel Tower, overlooking his city’s football and baseball stadiums, Romoff laid out a vision for healthcare that put it all together for me. I began to see how the patient-centered culture and aggressive marketing of “amazing things” at Corwin’s hospital, how Steele’s flat-rate, no-bill-padding regime at Geisinger, how Gottlieb’s wish to compete for the full menu of a patient’s health needs, and how Cosgrove’s having brought world-class care to Cleveland—how all of that—could be combined and taken to a whole new level, based, oddly enough, on Romoff’s plan for world dominance, or at least dominance in western Pennsylvania.

  I spent much of my time with Romoff talking about his insurance company, which was run by Diane Holder, an elegantly dressed, longtime UPMC administrator sitting to my right. A hospital with its own health insurance company, they explained, was called an “integrated delivery and finance system.” UPMC aimed to produce a model of that for the country. In fact, it had started another business to sell consulting and data analytics services to other hospital systems that wanted to do the same thing in their regions.

  By now Highmark’s insurance market share in the Pittsburgh region had shrunk from 65 to 45 percent. Romoff calculated that with all the business he was taking away with his own insurance company, plus the inroads made by other insurers with whom he had now signed network deals, Highmark’s share would be at 25 percent by the end of 2014 and still sinking. He expected that his own insurance company would end up the leader in the market—and he was going to do everything he could to get to 100 percent.

  Would he be worried about being so successful that he drove out all the other insurance companies, I asked. “Of the things that keep me up at night, that is not one of them,” he answered, with a smile.

  Romoff was unabashedly trying to become the dominant insurer. And, of course, he was already by far the dominant provider through his twenty hospitals and hundreds of clinics, labs, and doctors’ practices.

  In other words, like Geisinger, only on a larger scale and with little competition in the market, Romoff could sell me health insurance, which would cover me when I used Romoff’s hospitals, clinics, doctors, and labs.

  There would be no middleman. No third-party insurance company. Other hospital systems, such as California-based Kaiser Permanente, had tried the same thing. But Kaiser was not perceived as having the network of best-brand hospitals and doctors that dominated their markets the way UPMC did.

  To me this was a hugely appealing idea, despite UPMC’s record of high prices and its take-no-prisoners approach to competition. Why? Because it was the structure that made sense, not the particulars of Romoff and UPMC.

  The insurance company would not only have every incentive to control the doctors’ and hospitals’ costs, but also the means to do so. It would be under the same roof, controlled by Romoff. Conversely, the hospitals and doctors would have no incentive to inflate costs or over-treat, because their ultimate boss, Romoff, would be getting the bill when those extra costs hit his insurance company. Steele had already proved this on a smaller scale at Geisinger.

  As Romoff put it, “All the incentives are aligned the right way. It’s the beauty of being the payer and provider at the same time. The alignments of interest are just so pure.”

  “When the incentives are not aligned,” he added, supplying a quote that could easily be read the wrong way, “it’s why seniors dying of cancer get chemo when they should just get hospice care.”

  To illustrate their point, Romoff and Holder, the head of his insurance unit, along with chief medical officer Steven Shapiro, described their “Low Back Pain Quality Initiative.”

  Experts have long considered the treatment of back pain as exhibit A in any discussion of medical waste. We spend more than $85 billion a year on it. Yet doctors who have studied the problem believe that 30 to 50 percent of the expense is wasted on needless operations and other treatments when rest or physical therapy would work better.

  In 2012, Romoff and his two executives explained, UPMC had initiated the back-pain initiative for patients with its insurance who used its facilities. It involved a new treatment protocol that, according to a UPMC white paper, “emphasized increased use of physical therapy and discouraged the use of high tech imaging studies or other radiologic procedures during this period, unless significant neurologic findings were present.”

  “Patients were happier, and we saved a ton of money,” Romoff told me.

  Maybe, but how can we know that the patients were happier or better off? And how could we know that those aging cancer patients Romoff had mentioned—who would have no place to go in and around Pittsburgh except to UPMC if Romoff has anything to say about it—wouldn’t be denied chemotherapy that they actually needed if Romoff-employed doctors were the ones holding the prescription pads?

  The cabbie who drove me in from the airport to see Romoff swore by UPMC and how its surgeons had repaired his large intestine. But do we want Romoff to have all that power? Isn’t his interest the one that was most “purely aligned” of all?

  That’s where doctor-leaders like Corwin, Steele, Gottlieb, and Cosgrove come in—along with strong oversight and regulation.

  Hospitals are already consolidating. We saw that in New Haven, and can see it in Corwin’s New York, Gottlieb’s Boston, and Cosgrove’s Cleveland.

  Let’s let them continue. More important, as they continue, let’s encourage them to become their own insurance companies, à la Romoff, so they can cut out the middleman and align those incentives.

  Let’s harness their ambition to expand, rather than try to figure how and when to contain their ambition.

  Why shouldn’t I be able to buy Toby Cosgrove’s Cleveland Clinic Health Insurance? What a great brand! I would know that I can use all of his facilities and doctors, and he would know that his incentive now—which, he says, has always been his incentive—is to provide good care, not expensive care ful
l of unnecessary and overpriced CT scans and blood tests. I would know that determining the nature of that care was going to be done not by insurance companies but by doctors whom I could hold accountable.

  But let’s ensure that accountability by insisting on tight regulation, mostly through the smarter use of federal antitrust law and state regulatory authority, in return for giving doctor-leaders such as Cosgrove, Corwin, Steele, or Gottlieb the freedom to expand and also to become their patients’ insurance companies.

  The first regulation would require that any market have at least two of these big, fully integrated provider–insurance company players. There could be no monopolies, only oligopolies, as antitrust lawyers would call them. The larger markets, such as New York, Los Angeles, and Chicago, might have to have four or five or even more players to make the competition real and to make sure, with accompanying regulatory requirements, that their footprints were big enough and their marketing plans robust enough to serve patients throughout their regions, not just in the wealthier areas.

  If Yale New Haven Health System has become too big for its market to allow for that real competition, it would have to spin off facilities to a new player that could compete on price and quality with its own credible brand. Maybe Gottlieb, Corwin, or Cosgrove would want to expand there.

  If that proved impossible, or if one of the integrated healthcare oligopolists competed so effectively that it forced the others out of business, then it would be regulated still more—the way a public utility is—with still tighter controls on profits.

  That would mean that the hospital and all the doctors it controlled would be subject to pricing and service delivery standards that reformers have sought since the mid-twentieth century. Healthcare in the United States would finally be treated as a public good, not a free market product. However, the change would have come, jujitsu style, not by a government takeover but because the private players had driven it to that state.