Code Red: Two Economists Examine the U.S. Healthcare System

October 12, 2010

Wag the Dog

Filed under: Integration — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 1:04 pm

I just read this summary of CMS Director Don Berwick’s description of healthcare integration:

“Dr. Berwick cautioned that integrated care is not the status quo repackaged; one size will not fit all. Instead, according to Berwick, truly integrated care is characterized by patient-centered, shared medical decision-making, where patients are remembered by the system, where care is carefully handed off among team members, where team members act proactively to manage both the patient and resources in a data rich environment, where information is transparent, and where organizations and individuals are curious about performance and inventive and resourceful in seeking out best models of care.”

Who could complain about that? Patient-centered?, Sharing? Proactive providers? Rich data? Transparency, curiosity and resourcefulness? He may as well throw in God, mother and country. Where do I sign up? But there is a sense of deja vu about all this. Advocates of healthcare integration have always sold us on these benefits. And providers have bought in, the result being the twin disasters of physician hospital organizations and integrated delivery systems. Dr. Berwick does say this is not the status quo, because this isn’t just integrated healthcare, it is “truly” integrated.

But I don’t quite get it. What is “truly” integrated healthcare? Is Dr. Berwick saying that organizations must be integrated in order to deliver care that is patient-centered, etc., but that they need to do a better job of it? (I think he is.) Or is he saying that the delivery of medical care should be organized so as to give us care that is patient-centered, etc. but that providers need not be integrated to do so? (I hope he is.)

For two decades we have been told that organizational integration will bring about the integration of care delivery. But it never has. So I hope that Dr. Berwick will keep an open mind about organizational design. Vertical integration sometimes improves production processes and sometimes makes them worse. The economics of organization has identified many issues that need to be addressed if one is to sensibly design the organization of a value chain. These issues include contractual incompleteness, coordination of design attributes, protection of relationship specific investments, internal capital markets and influence activities.

After due consideration of these issues, it is far from obvious whether integrated healthcare organizations will outperform market based firms. It is telling that they have not so far. But spurred on by policy makers and a handful of persuasive academics who ply their trade in healthcare strategy but seem to be blithely ignorant of the underlying economics, healthcare managers have displayed a herd mentality when it comes to organization integration. I fear that with the urging of CMS, we are on the verge of another integration wave. I just hope that healthcare managers take the time to duly consider the economic risks and benefits of organizational integration. I am not optimistic.

Integration is just a buzzword. It should convey neither positive nor negative connotations. But in healthcare it has become an end in and of itself. The means justifying the ends, if you will. If we can improve patient care without forcing organizations to integrate, then why the rush to integrate? If integration actually sets back the process of promoting high quality, low cost care, then again why the rush to integrate.

Let’s not let the tail wag the dog.

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