Slowly Remaking the U.S. Healthcare System

Health Services Research, April, 2000 by Stephen M. Shortell

For the past several years, Paul Ginsburg and colleagues, with support from the Robert Wood Johnson Foundation, have been tracking changes occurring in our nation's healthcare system. In this issue of Health Services Research, they report on some of the more recent findings regarding changes in health plan competition and healthcare delivery systems in local markets. The bottom line appears to be that, although a great deal of change and restructuring are occurring, there is not yet very much to show for it.

The Grossman article highlights the tension between the health plans' need to capture greater market share through offering broad networks and products, on the one hand, while creating difficulties in managing the networks and products, on the other hand, Providers are unlikely to respond to efforts by health plans to better manage utilization, cost, and overall care management if the providers get only a small percentage of patients from each plan. The thresholds or "tipping points" for stimulating significant changes in provider behavior do not yet exist.

Kohn documents similar tensions and ironies at the provider level. Specifically, the need of providers to get larger in order to secure managed care contracts makes it more difficult for them to manage care once they have the contracts. The lack of appropriate information technology, duplicate guidelines and protocols, and redundant services are only part of the problem. One also needs to recognize that most physicians simply do not like and do not trust large organizations.

Both of the foregoing sets of observations, however, may require a deeper understanding of the U.S. healthcare system. Briefly, the diagnosis of "churning without much impact," as identified by the Community Tracking Study, may be explained by understanding the very different stages of evolution under way in the major institutions making up the system--hospitals, health plans, and physicians. As institutions, hospitals and health plans are more evolved in the natural history of the organizational lifecycle than is the medical profession. For example, the hospital sector has changed from a cottage industry, up until the decade of the 1980s, to an entity that now comprises a high degree of consolidation: approximately 72 percent of the nation's hospitals belong to a network or system. Further, although they continue to lag behind counterparts in other sectors, hospitals are developing a considerable database and information-processing capacity. Likewise, health plans have consolidated on a large-scale basis an d have developed considerable expertise in establishing premiums and in claims processing and marketing. In contrast, the medical profession largely skipped the industrial revolution. While most of the nation was coming "off the farms" and capturing the advantages of economies of scale and scope in the manufacturing and service sectors, medicine largely remained a solo or small partnership enterprise. Even today, over 80 percent of the medical "groups" in the United States have only between three and nine physicians (Havlicek 1999), and of all physicians in the United States only approximately 45 percent are practicing in groups of any size (Havlicek 1999).

The net result of all of this is that, as we enter the electronic/information age, an important and sizable component of the U.S. health system has not yet fully entered the industrial age. Thus, efforts to significantly change healthcare in local markets reflect the challenge of dealing with institutions that are at radically different places in their current stage of evolution. Many physicians not only lack the financial and volume incentives to manage care differently; they also lack the information technology, organizational know-how, and sense of a team-oriented culture to do so.

The solution is not likely to lie either in having health plans become doctors or in having doctors become health plans, because these arrangements go against the comparative advantages of each. Rather, the trick appears to lie in developing effective partnerships among health plans, physicians, and local hospitals/health systems in ways that will integrate the comparative advantages of each to better serve patients and the local community. Ginsburg and colleagues are right in noting that working out these new relationships is going to take some time. This is particularly true given the lack, as yet, of a wide-scale movement for employers to purchase care based on value criteria that take service and technical quality of care into account in addition to costs. Up to now, no sufficient "business case" has been made for improved quality and outcomes of care and, therefore, no marked incentive is in place for physicians or other health professionals to change the behaviors for which they have been amply rewarde d in the past. Whether or not forces are afoot in the environment that will change these circumstances in the future and the impact of any such forces on employers, health plans, hospitals/health systems, physician organizations, and consumers in local markets is of great significance. Having established a baseline of information and knowledge of health system relationships in communities throughout the country, the Community Tracking Study is poised in the next several years to shed considerable light on these issues and on the questions raised in these HSR articles.