Amazon, Berkshire Hathaway, and JP Morgan Chase are now in the health care business. Their announcement in 2017 generated substantial speculation. Three businesses: the first, a serial disruptor with incredible logistics capabilities; a second with unparalleled strategic investment success; and the third, a bedrock financial institution — will now take on a frighteningly complex, $3.3 trillion industry. This is the first time the corporate world will get involved with health care. Historically, however, change agents in the delivery of health care are the rule rather than the exception. The idea that health care systems can and should be static is foolish. In a world where some of our most educated citizens have been reduced to the label of “provider,” how will new players continue to change the game?
A Quick History on the Changes in Health Insurance
1965: President Lyndon Johnson signs the Social Security Amendments, establishing Medicare for the elderly and Medicaid for the poor, adding disabled individuals to Medicare after 1972. Previously, health insurance was tied to employment, or was a direct transaction between patient and physician. From the perspective of the specialty physician, the patient had autonomy in choosing her physician. The doctor-patient relationship was a direct one. Medicare and Medicaid added the government to this relationship.
1973: Health Maintenance Organization (HMO) is created. HMOs offered health coverage to members on a prepaid basis with a focus on preventive care. Patients are charged a fixed fee, regardless of how much medical care is needed. HMOs are for-profit health plans, where the insurer manages care delivery and keeps savings, with many insurers receiving financial incentive to keep costs down. With the HMO came the “gatekeeper,” usually a primary care physician, responsible for managing the care of the patient. In this model, the patient does not choose when or to whom she can go for specialty care. (1) All referrals are made through this gatekeeper. The HMO must authorize anything not “preventive,” including lab studies, surgeries, physician visits, imaging tests, and hospital care. Essentially, HMO patients choose their gatekeepers, and their gatekeepers choose everything else.
1977: Health Care Financing Administration (HCFA) is formed. Specialists were recommended by other physicians, but ultimately choice was left to the patient. The specialist selected procedures to recommend, chose the hospital in which she worked, and chose the health products she used to care for her patient.
1980: Approximately 9 million Americans belong to an HMO. Backlash of lack of choice with HMO leads to Preferred Provider Organizations (PPOs), which allow coverage for out-of-network physicians and services, with added financial responsibility to the patient
1990: More than 37 millions Americans belong to an HMO.
Medicare, Medicaid and the Affordable Care Act
Medicare and Medicaid currently cover 111 million Americans. The Affordable Care Act of 2010, aka “Obamacare,” mandated the individual purchase of health insurance and also mandated insurance coverage of individuals with pre-existing, often costly, conditions. Private insurers passed their additional costs to the patient, where premiums and deductibles increased up to 60% from 2010-2016. The ACA also required use of the Electronic Medical Record (EMR) for physicians receiving payment from Medicare. This costly and administratively burdensome requirement drove many private specialty physicians to become employed by hospitals or large groups.
Not only was the EMR required, but the government made rules, “acceptable use criteria,” (AUC) about how the EMR must be used in order to avoid financial penalty. The EMR/AUC changed the doctor-patient relationship in at least two major ways.
First, it caused doctors to substantially increase time spent on documentation. This time was either removed from the face-to-face patient encounter, or was addressed with added hours of work time at a computer. A recent study showed that some physicians spent more time with the computer screen than with their patients in order to meet AUC. (2)
Second, the EMR shifted ownership of the patient record from the physician to the electronic realm. No longer was the office record a unique chronicle of the relationship between one physician and her patient; rather, this work product of the physician had to fit an electronic template and had to be shared. Any physician with access to the electronic network can read or add to the EMR.
The ACA created hospital financial incentives for value over volume. Value-Based Care (VBC) emphasizes the improvement or maintenance of quality with reduction of waste and cost. These initiatives target Medicare payments to hospitals. Bundled Care Payments (BCP) and Comprehensive Cost (CC) programs target common, costly procedures. For Total Joint Replacement (TJR), one payment to a hospital covers surgery and a fixed time period for care afterwards. If the cost of care is lower, the hospital retains the savings. If the cost is more, the hospital is responsible for the difference. The hospital, with financial incentives from government, now layers its administrators as another intermediary between surgeon and patient.
Amazon and Health Care
So we arrive at the Amazon-BH-JPM health care company. Let’s call it “Primo Health.” To anticipate what Primo Health might do, let’s look at what these companies do now from the perspective of the customer. Specifically, the supply chain element.
If the customer wants paper towels, she can order these to be delivered to her home each month. No need to go to a store and get to know the shop owner. The customer already knows what she wants and does not want to waste time or money, and companies like Amazon are eager to turn the shop owner’s margin into its profit. The loss of the shop owner-customer relationship is not critical to paper towel purchase. Food is the same — you can order online, but many still prefer in-person.
What about health care? Specialty care? How far could Primo Health take disruption of the middleman? Could Primo be the disruptor that shakes our bloated health care system so that costs are more transparent? So that the patient again has autonomy?
Primo Health has already become involved in hospital product supply chain, and in direct delivery and packaging of medications to patients. It’s no surprise that the newest Amazon distribution center is in New York City: home of six major academic hospital centers.
With BCP in effect for five years in some centers, Primo can access quality and pricing data for many common procedures. Right now, one can go online and compare the cost and quality of brands of any number of consumer products. A screen with ratings, pricing, and reviews pops up for each brand. Primo could apply this model to common medical procedures. Thanks to BCP, cost comparison data are now available. Why couldn’t Primo negotiate directly with hospitals for these common procedures, publish their pricing, and allow consumers to choose? Primo could start with the employees of its three companies, where their care would be negotiated and purchased directly from hospitals rather than through insurance. Let’s call this hospital-centered concept “Model One.”
With Model One, the patient-surgeon relationship disappears. The hospital, not the surgeon, is chosen. Conceivably, more than one surgeon might perform a single operation, with follow up care performed by yet another person or group of people. So long as cost and quality parameters are met, there is no incentive for a direct relationship with any one physician. The surgeon is employed without recognition of those with superior skill or performance.
A more refreshing possibility, Model Two, is that Primo could allow consumers to choose surgeons, based on quality metrics, reputation, and reviews. Cost could be calculated using hospital Bundled Care information, and surgeons would be paid for their services directly. With Model Two, the surgeon and patient are directly connected, with direct responsibility in both directions. Model Two creates competition, where the best surgeons would seek the most cost-effective practice settings to increase competitveness. These include academic centers, outpatient surgical centers, or physician-owned hospitals (POH). Higher quality surgeons could set their own fees and could charge more, with transparent pricing to patients, who are free to choose based on cost. Hospitals would compete for the best surgeons, driving even higher quality and care.
Under the ACA, there are strict limits on which hospitals are allowed to expand and compete. Any POH which accepts government insurances are not allowed to expand. Further, according to Section 6001 of the ACA of 2010, new POH are strictly limited if they accept Medicare. Ironically, these same hospitals were found to perform extremely well in Value-Based Care settings. Economic analysis projects that expansion of POH would yield at least $10 Billion cost savings over a 10-year period. (3, 4) Prior concerns related to Stark Law about overutilization in volume-based care are no longer valid in a value-centered setting.
Model One places too much power in the hands of the hospital. The surgeon disappears and becomes just another widget. Model Two allows not only the preservation of patient autonomy, but maintains a doctor-patient relationship. It creates competition between surgeons and institutions. Re-evaluation of restrictions on POH (5) creates healthy competition and transparency to maintain quality and reduce the cost of care.
What Can We Do?
We as surgeons and specialists must anticipate there will be new attempts at health care delivery and work together to retain a semblance of our doctor-patient relationship. Rather than wait for someone or something else to decide for us, we need to engage and be active participants at every level — hospital ownership, management, advocacy, government — at the peril of losing the link to our patient completely.
Dr. Lajam is a physician at NYU Langone Orthopedic Hospital.
- P. Franks, C. Clancy, and P. Nutting, “Gatekeeping Revisited: Protecting Patients from Overtreatment,” The New England Journal of Medicine 337, no. 6 (1992): 424–9)
- Joukes E1, Abu-Hanna A1, Cornet R1,2, de Keizer NF1. Time Spent on Dedicated Patient Care and Documentation Tasks Before and After the Introduction of a Structured and Standardized Electronic Health Record. Appl Clin Inform. 2018 Jan;9(1):46-53. doi: 10.1055/s-0037-1615747. Epub 2018 Jan 17.
- Schneider JE and Scheibling CM. “The Effects of Physician-Owned Hospitals on Medical Care Quality and Expenditures.” Avalon Health Economics November 12, 2013
- Walker, T. “Specialty Care Facilities Make a Case by Improving Outcomes and Costs.” Managed Healthcare 8 No. 6 (1998); 51-4
- H.R. 1156, “Patient Access to Quality Health Care Act of 2017”.
Clipart models by Dr. Lajam