Divorce healthcare style

The unraveling of a southern California hospital merger suggests a grim future for healthcare payment reform

A major divorce case unfolding in southern California has ripped the veil off one of the major justifications for big hospital mergers: That one large organization can achieve better patient outcomes at lower cost than two smaller operations.

But the case also suggests that the physicians at well-endowed hospitals in well-off communities are once again asserting their financial self-interest and leaving the delivery system reforms outlined in the 2010 Affordable Care Act in disarray.

Orange County’s prestigious Hoag Hospital, whose flagship 588-bed facility sits atop the Newport Beach bluff overlooking the Pacific Ocean, is seeking to dissolve its 2012 marriage to St. Joseph Health System, which runs four hospitals in the county. In 2016 the combined St. Joseph-Hoag system merged with Providence Health, a mega-system with 51 hospitals based in Renton, Wash.

Superficially, the lawsuit, which was filed last May, looks like a classic case of religious incompatibility. The non-profit Hoag’s founders are affiliated with the Presbyterian churches in the county. Both St. Joseph and Providence, also non-profits, are affiliated with the Catholic Church.

Los Angeles Times columnist Michael Hiltzik has given extensive coverage to Hoag physicians’ frustration over the restrictions Providence St. Joseph places on their ability to deliver unfettered access to abortion and reproductive health services for their patients. “The Catholic Church exercises its authority through the Ethical and religious Directives for Catholic Health Care Services (ERDs), a product not of doctors but the U.S. Conference of Catholic Bishops,” Hiltzik wrote in late February. The ERDs ban abortion at Catholic-run facilities.

The bigger picture

But those frustrations are just a minor part of the lawsuit. Hoag’s major charge against Providence St. Joseph is that the mega-system, which is headed by Dr. Rod Hochman, reneged on its pre-merger promise to pursue a population health management strategy. Hochman currently chairs the board of the American Hospital Association and is a leading apostle for improving clinical quality, addressing the social conditions that lead to ill-health, and deploying population health management tactics.

The AHA defines population health management as a suite of activities aimed at improving overall health outcomes for a defined group of individuals, which can be members of a health plan or the population of an entire county, for instance. It can be achieved “through improved care coordination and patient engagement supported by appropriate financial and care models.” The programs usually involve making better use of primary care and early interventions, often targeting low-and-moderate income patients with multiple chronic conditions who generate a disproportionate share of costly hospitalizations.  

Given the 2010 Affordable Care Act pilot projects that nudged hospitals in the direction of population health management, Hoag wanted to be part of an “advanced and transformative model … that would employ a closely coordinated Orange County network of hospitals and physicians,” the suit said. “This was a mission-driven decision to expand and transform local healthcare, not a financial decision.”

It accepted the restrictions on reproductive health because it thought the merger “would be able to transform the delivery of care.” But Providence St. Joseph totally failed at population health management, the suit alleged. The goal of bringing one million covered lives under a population health management umbrella within five years was abandoned three years ago. The alliance didn’t even bother to generate a set of indicators for measuring outcomes, quality and safety.

Last year, Providence officials told Hoag’s board that population health is no longer relevant, the suit alleged. The internal organization pursuing the strategy “is now an empty shell with no assets or employees.” Providence wants to hold onto the well-endowed Hoag to bolster its bond rating, the suit further alleged. “Providence benefits from the substantial community assets that belong to Hoag and its community, while impairing Hoag’s use of the assets.”

The docs strike back

But Hoag is far from blameless, according to the latest article on the unraveling merger, which appeared Tuesday on the Kaiser Health News website. “Hoag doctors say that Providence’s drive to standardize treatment decisions across its chain – largely through a shared Epic electronic records system – often conflicts with their own judgment of best medical practices.”

If population health management is the hospital sector’s outward-looking strategy for improving healthcare outcomes at a lower cost, greater standardization in care delivery is its inward-looking twin. Hospitals on the cutting edge of quality improvement took a page from Edward Deming’s playbook for improving manufacturing quality through standardization. They adopted common care algorithms to reduce the use of unnecessary tests and procedures and to limit the use of overpriced drugs when similar outcomes can be achieved with cheaper alternatives.

They also used data derived from electronic health records to track individual physician’s prescribing patterns and treatment choices. They also measure their outcomes. When shown data that reveals their outlier status compared to other physicians on either utilization or outcomes, physicians usually get the message and begin adhering to the care algorithms. The specialist physicians whose high incomes depend on generating high volumes are the hardest to convince, of course.  

When properly deployed in a medical setting, standardization doesn’t prevent a physician from deviating from the care algorithm if a particular patient’s circumstances require it. The KHN article said Hoag’s CEO Robert Braithwaite couldn’t cite a single instance where adherence to the centralized care algorithm harmed a patient.

The article did cite orthopedists’ complaints about not being allowed to substitute an intravenous, and therefore pricier post-operative pain relief drug for opioids. After they complained, it went back on the approved drug list but required nurses to obtain prior authorization every four hours. The physician who recounted the story – a cardiologist not directly involved – told the reporter, “Doctors probably felt, ‘Screw it, I don’t want to get woken up every four hours,’ so they probably just gave them narcotics.’”

Prior authorization can be slow and cumbersome. But deeper issues were at work.

Some Hoag specialists, according to the article, have been separated from St. Joseph’s in-network provider list for Orange County after going out on their own to negotiate contracts with health maintenance organizations. Hoag Hospital is considered the prestige hospital in Orange County; its clientele are largely well-off and well-insured. The specialists who practice there are not dependent on an affiliation with Providence St. Joseph.

”This lawsuit is a sad comment on the entire system,” said Dr. David Nash, founding dean emeritus of the Jefferson College of Population Health in Philadelphia. “There is no research evidence that the national systems do better or do it cheaper (through population health management). I give Providence credit for understanding that and working hard to try to achieve synergies through standardization.”

On the other hand, “successful large private hospitals like Hoag in wealthier areas have no economic reason to do all the things that need to be done to practice value-based care,” he said. “So both systems are doing the rational economic thing.”

What next

Healthcare has just come through an era of massive hospital consolidation and large systems’ acquisition of numerous physician practices. In the post-COVID era, many of these mergers will start to unravel as doctors and hospitals who depend on fee-for-service medicine reassert their economic self-interest.

Where does that leave the goal of achieving better health for more people at a lower cost – the goal of half the pages in the ACA? That question now falls into the lap of Elizabeth Fowler, who has been tapped to run the Center for Medicare and Medicaid Innovation by the Biden healthcare team. Fowler served as Sen. Max Baucus’ chief of staff in 2009-2010. She helped write the law that set up accountable care and population health management pilot projects.

What advice would Dr. Nash give her? “You have to go to mandated capitation (a flat per member per month payment for the insured; not fee-for-service medicine); mandated bundled payments for 15 DRGs (major operation payment codes); and mandated direct contracting. CMMI has to get off its duff and say we’re not going to support 30 programs.

“If you don’t want to participate, no problem,” he concluded. “But then there’s no Medicare funding. That creates the economic rationale for the Hoags of the world to learn these methods.”