What will hospitals look like in the next health system?

As we prepare for the 2018 Lown Conference on April 9-10, we want to help you get ready as well. So we’re putting out interviews with some of our keynote speakers and panelists so you learn more about what to expect at the conference, and start getting excited!

Hospitals in transition

The US has a hospital-centric health system. Almost one third of health care spending is for hospital care, more than spending for clinician services and prescription drugs combined. But the future of this hospital-centric system is uncertain – some see hospitals becoming smaller in the future as the number of hospitalizations decline. 

If the hospital system as we know it is disappearing, what will hospitals look like in the next health system? And how can we use policy to bring hospitals’ economic incentives more in line with patient care as hospital structure changes?

Featured experts from the Lown Conference panel, Next System Hospitals: Cost, Quality, and Innovation, weighed in on this issue.

Effects of consolidation

Part of changing our hospital-centric system to a health-centric system is changing the pattern of consolidation. As some hospitals are downsizing, others are merging on a vertical and horizontal level to create monopolies. Although these mergers promise increased efficiency and cost-saving, the panelists are skeptical.

“We’re paying a 20% premium on prices because of consolidation, but no evidence it’s improving clinical results or making care more efficient,” said Phillip Longman, journalist at Washington Monthly and author of Best Care Anywhere: Why VA healthcare would be Better for Everyone. 

Mark E. Miller, Vice President of Health Care at the Laura and John Arnold Foundation, agreed. “There’s a tension between the desire for consolidation to improve coordination of care, but the first thing that happens when hospitals consolidate is they raise prices.”

What policies could help reduce consolidation that drives price increases? Longman suggested better enforcement of antitrust laws, and imposing Medicare prices on all payers. “That way, the competition is on who can make the patient better rather than who can shift the cost,” he said.

However, the panelists acknowledged high barriers to policy change. “Policy levers are tough because when anyone tries to change the status quo, there’s an army of lobbyists representing the medical-industrial complex,” said Dr. Patricia Gabow, former Denver Health CEO and Board member at the Lown Institute. 

Miller suggested that policymakers challenge the idea that hospitals can’t control their costs. Hospital associations justify prices by saying their costs are high. “Our point is, why are their costs so high?” said Miller.

Global budgeting in practice

Dr. Joshua Sharfstein, Director of the Bloomberg American Health Initiative, has experience in the practical application of these policies in Maryland. In 2014, the state put hospitals on a global budget, so each hospital’s total revenue is set at the beginning of each year, with the goal of redirecting hospital incentives toward prevention and community development.

Since the implementation of global budgeting, there have been many positive changes, says Sharfstein. Hospitals are responding to financial incentives and doing things they would not otherwise have done, like creating an emergency crisis response center, taking over school health programs, addressing mental illness in preventive care, and closing hospital wings with low volume.

At the same time, global budgeting is not a panacea. “If you have high expectations, you’re bound to be disappointed,” said Sharfstein, “The culture in these hospitals is independent of incentives.” Despite an increased investment in communities, hospitals are still reluctant to share resources with outside groups providing social services, even if it would save hospitals money in the long run.

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