HCI3 Update from the Field: The Empire Strikes Back

Submitted by francois.debrantes@hci3.org on Thursday, September 27, 2012 - 03:49

Newtown, CT – September 28, 2012

The Empire strikes back – Financial suicide isn't at the top of a health system's CFO's list of priorities, and yet that's what we seem to expect them to do by entering into voluntary agreements that will decrease revenue, reduce occupancy, and force all kinds of nasty restructuring that no one wants to do unless they have to. As a CFO from a large renowned "ACO" told me: "I have a five year financial plan that includes very high occupancy rates at a brand new facility, and I intend to meet that plan." And we also seem to expect, despite the best evidence to the contrary, that further consolidation of providers into existing (and often already large) health systems is simply to improve care coordination across the continuum. You know what, Darth Vader only turned into a nice guy when he was about to die. Until then, he was busy building up the Death Star. I know it's far more pleasant to live in a fantasy world than reality, but somehow we have to stop confusing the two. And the shift in attitudes by many large health systems should be a big wake up call. While they might be signing what will inevitably amount to be bogus "ACO" deals, it's really a trick play, a tactic to avoid something more disruptive….competition on price and quality at the service line level. And what's really sad in this story is that many health plans are acting like Lando Calrissian. Hopefully, like him, they'll end up by choosing the right side.

What this means to you – A company's nature is to increase market power and market share, and yet we lay aside that consideration when dealing with a large health system. Why? What is the evidence base that any large system (think about UPMC or Sutter) has voluntarily curbed growth in size and leverage? And from what we've seen and experienced recently, the ravenous hog has simply slapped on a little lipstick to pass itself off as Miss Piggy. But with all due respect to that Muppet, a pig is still a pig. Or to stay with the prior analogy, what we're really dealing with is a bunch of Jabba The Hutts and we forget it at our peril. Think about the nature of the conversation when Plan X goes to settle the ACO deal with Health System A, and Plan X represents maybe 5% of Health System A's book of business, while Health System A is now a "must have" for Plan X's network. It will be exactly like Boba Fett negotiating his fee with Jabba, and whatever money the health system might owe the plan will either be absorbed by increases in the target trend rate (or cap rate) for the following year, or simply ignored. And we're all walking into this trap like Han Solo.



Francois de Brantes
Executive Director
Health Care Incentives Improvement Institute, Inc.
w: www.hci3.org