COVID-19 isn’t initiating change in the health care business as much as speeding it up
One of the things we’ve been learning about COVID-19’s impact on life and society is that it doesn’t so much change the future as it does make the future that was going to happen anyway show up a whole lot sooner than it otherwise would have.
Exhibit A: Health care.
Two recent and local news items in the health care sector vividly illustrate the phenomenon of the pandemic accentuating and accelerating trends already at work before the coronavirus hit.
Item No. 1: Tacoma-based CHI Franciscan and Seattle-based Virginia Mason announced they signed a memorandum of understanding to explore “combining the two health systems through a formation of a joint operating company.”
Item No. 2: Amazon announced it has hired an outside company to set up health care clinics near its own distribution warehouses for employees and their families. None of the first five locations are in Washington, although Amazon says if the pilot program works, it’ll be expanded to other cities.
Tempting as it might be to assign credit or blame for these announcements to the current crisis, it apparently wasn’t tempting enough for any of the participating entities to mention it in their press releases announcing their respective ventures. That’s because neither announcement would have been out of place in a pandemic-free environment.
Health care organizations have been on a merger, acquisition, growth and consolidation spree for more than a decade. Consider CHI Franciscan, the parent of St. Joseph Medical Center in Tacoma and nine other hospitals around the region, some of which — in places like Burien and Silverdale — were existing operations added to the portfolio. Not long ago CHI joined up with Dignity Health to form CommonSpirit Health, a 21-state, 142-hospital conglomerate. How Virginia Mason and this new joint operating company fit into this structure will presumably be one of the top-of-the-agenda topics for those exploratory talks.
CHI Franciscan also operates more than 220 primary and specialty care clinics in the region. Those numbers, as well as those for the overall conglomerate, are important to keep in mind to understand the underlying trends. All this empire building is driven by the need to improve the two main components of the income statement: increase revenue, drive down costs. The theory is that increased size will bring efficiencies by reducing duplicative operations and providing greater negotiating power to wield against vendors, suppliers and insurers.
By having a sprawling network of hospitals and clinics, the theory adds, health care organizations not only have a larger pool of patients from which to draw (and to increase utilization rates at the facilities they already own, relieving the need to expensively build more), they also can keep more of each patient’s revenue within the system, whatever specialty treatment he or she needs.
If you’re wondering what patients and employees get out of this, here’s the cynical but realistic answer: some pretty assurances in the initial press releases and not much else. Years of observing consolidation in the banking industry make it evident that mergers and acquisition are never driven by consideration of impacts on customers and employees.
CHI Franciscan is hardly unique in its appetite for growth. Indeed the region has for at least a decade been consolidating around a handful of health care-network hubs, including CHI Franciscan’s fellow Tacoman, MultiCare (others include Swedish and the University of Washington system). Independents, at least among hospitals, are an endangered species.
All this predates COVID-19 and would have continued without it, but what the pandemic has done is add more costs and more pressure for health care systems to address the revenue-expense squeeze. Whether CHI Franciscan and Virginia Mason conclude a deal or not, expect to see more announcements of a similar nature within health care — and sooner rather than later.
Among the groups unhappy with the current cost and structure of health care is one that writes checks for a lot of it — employers. That unhappiness has led to a lot of experimentation in how care is organized and delivered; the now-shuttered Qliance was one such regional effort.
Amazon’s policies on employee health care would be worthy of notice just for the sheer size of the company. But coupled with Amazon’s history of seeking out new sectors to disrupt and the specific interest Amazon has signaled it has in health care, anything it announces is going to generate considerable scrutiny, analysis and conjecture.
Such was the case when Amazon, Berkshire Hathaway and JPMorgan announced several years ago, to much ballyhoo, a joint venture company to come up with revolutionary ideas about health care. To date that venture has produced little, so it’s interesting that Amazon is pivoting to a decidedly unrevolutionary health care delivery channel — the on-site (or near-site) company doc.
The proposed system of primary care clinics is officially and ostensibly for and about Amazon employees, but the mind races with possibilities as to where this could go. Would Amazon offer its services to other employers? To the general public, maybe as one more add-on to a Prime account? How about specialty services, or dental and optical? Would this put Amazon into direct competition with health care networks like CHI Franciscan?
Maybe, but that’s if the idea even works. Efforts to solve the health care industry’s problems have been as successful as efforts to rein in COVID-19 — and everyone has been working on those problems a whole lot longer.