How Competition Keeps Healthcare Healthy

Matthew Stilson

Matthew Stilson , MD

Vice President of Operations, Emergency Medicine

Published October 16, 2014

Some say consumers have lost trust in our healthcare system. However, a recent antitrust ruling in Idaho may hold the key to regaining some of that confidence — and curbing the unintended consequences of reform.

Challenging Conventional Wisdom

In preparation for healthcare reform and the shift toward value-based reimbursement, hospitals have been scrambling to buy physician groups.
Their oft-stated rationale: employing physicians equates to physician integration, which will promote better quality, greater efficiency and less error and waste. Ultimately, this arrangement means better care and lower costs for consumers. It will also allow hospitals to benefit from new value-based reimbursement schemes.
Sounds logical, right? Well, Idaho's Federal District Court isn't quite buying it.
Last year, the Federal Trade Commission and local competitors sued St. Luke’s Health System, claiming it violated antitrust laws when it acquired a local physician group (Saltzer Medical Group) in 2012. The merger effectively gave St. Luke’s an 80 percent market share over adult primary care in its region.
Plaintiffs pointed out several problems with this:
  • St. Luke’s could now bill outpatient ancillary services ordered by Saltzer physicians at higher hospital rates.
  • Because it delivered most of the area's healthcare, the hospital would have unfair negotiating power over payers.
  • Lack of competition created a situation in which healthcare costs could rise unchecked.
St. Luke’s responded with the usual arguments about the benefits of physician integration. But the court, despite acknowledging the hospital's positive intent, ruled against the merger.
Most notably, the court opined that St. Luke’s and Saltzer did not need to merge in order to accomplish the goals of healthcare reform, and that there were other ways to boost patient outcomes without risking cost inflation.

Independence and Performance

For me (and I suspect for many others physicians), the St. Luke's opinion validated our experience and observations on the front lines. If better care and higher quality are the fundamental goals of healthcare reform, these goals are best served by preserving healthy competition — and in particular, by encouraging the independent practice of medicine.
As regional director for a large independent physician group, I have the opportunity to work closely with several health systems to improve their emergency care. In my state, it’s not uncommon for some of a system’s hospitals to contract with independent emergency physician groups while other hospitals in the same system employ their emergency physicians directly. This provides an opportunity for some interesting comparisons.
In my experience, the independent emergency medicine groups outperform employed emergency physicians on just about every metric. This is true despite the fact that the "employer" hospitals generally have more physicians treating the same volume of patients (and in some cases, as many as 50 percent more).
Based on these experiences, I'd take the court’s reasoning one step further. It’s not just that ownership of physician groups that is unnecessary. Physicians are actually providing better outcomes for patients when they’re allowed to manage their own affairs.

How Competition Drives Excellence

So why do independent physicians appear to be achieving better outcomes with fewer physicians? I think that in large part, it’s because healthy competition drives independent groups toward continuous improvement.
Unlike physician employees, independent groups compete with one another (and with corporate-owned groups) for contracts. They know that more and more hospitals are employing physicians directly. In this challenging environment, they must prove their value to their hospital clients. To a large extent, they make or break their own destinies.
How do they do this? One way is by boosting efficiency. The unscheduled nature of ED visits presents challenges, but it also brings unique opportunities. Emergency physicians can greatly boost productivity through continuous process improvement. This ultimately leads to better throughput, more satisfied patients and an enhanced hospital reputation.
Innovation is another way that independent groups can add value. Because they must compete, they're tireless in the search for new and better ways to care for patients. They tend to stay on top of new developments and best practices. And often, the ED's they work in become incubators for practice innovation.
An example of this from my own organization is Team Care, in which emergency providers, nurses and technicians work in multidisciplinary teams to deliver faster, more coordinated care. Team Care started at a single ED, where it decreased turnaround time to discharge by 20 percent. It has since been adopted physicians across CEP America, who have spread it to hospitals across the country.
A third way independent groups compete is by recruiting and retaining top providers. Hospitals naturally want to offer patients the most expert, compassionate care available, and they want those doctors to stick around. So groups that invest in human capital will always have an advantage.

Conditions for Success

Now lest I overstate my case, it would be unfair to suggest that "employer" hospitals and corporate physician management groups don't improve, innovate or hire great providers. I think it's safe to say that almost all emergency physicians truly want to do the best for their patients, no matter who signs their paycheck.
However, I do believe the competitive nature of independent practice gives those groups a distinct advantage in terms of quality and value. Because they must compete or die, independent groups are constantly incentivized to improve. And because they control their own finances, they can channel their money as they see fit. They don't need to curb spending in order to appease shareholders. They're free to reinvest their earnings in the practice via competitive benefits, technology and training.

A Competitive Future?

In my opinion, the district court sent an important message with the St. Luke’s ruling. Of course, St. Luke’s is appealing the case, so the final outcome remains to be seen.
However, it does seem that our legal system is waking up to the potential pitfalls of unchecked consolidation. To this end, the attorneys general of 16 states have filed an amicus brief supporting the district court’s decision. If the decision holds on appeal, it could do much to prevent soaring costs and move our system closer to the goals of healthcare reform.

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