Perhaps by now you've read Atul Gawande's latest New Yorker piece in which he explains how hospital chains could and should achieve better outcomes at lower cost. The key to them doing so, in Gawande's telling, is widespread application of evidence and disciplined adherence to proven standards. Gawande spends much of the article illustrating how the Cheesecake Factory manages to tight standards, increasing quality and lowering costs along the way. His claim is that, like chain restaurants such as the Cheesecake Factory, hospital chains are in a better position to achieve higher quality at lower costs by exploiting economies of scale, making investments that would not be feasible for smaller organizations. I'm on board with Gawande that hospital chains should make such quality-improving, cost-lowering investments. I'm even on board that they could. I'm skeptical that they will, and the evidence from the past is that they, by and large, don't. Let's start with that evidence. You can take it in the form of scholarly studies -- and I'll get to those -- or you can take it in the form of recent news reports, such as this from the New York Times:

HCA, the largest for-profit hospital chain in the United States with 163 facilities, had uncovered evidence as far back as 2002 and as recently as late 2010 showing that some cardiologists at several of its hospitals in Florida were unable to justify many of the procedures they were performing. [...] Questions about the necessity of medical procedures — especially in the realm of cardiology — are not uncommon. [...] At [HCA's] Lawnwood, where an invasive diagnostic test known as a cardiac catheterization is performed, about half the procedures, or 1,200, were determined to have been done on patients without significant heart disease, according to a confidential 2010 review.
The widespread overuse of certain cardiac procedures is well known and documented in the medical literature. It's far from the only overuse of expensive medical technology. It is not without risk to patients and, therefore, cannot be said to be quality improving. Is such quality-reducing, cost-increasing waste all or only the fault of hospital chains? No, it isn't. But there is related evidence that integration of hospitals into chains does not improve quality or reduce costs for consumers, the two things Gawande (and I) hope for. In a 2006 literature review on hospital consolidation (recently updated to 2012), Martin Gaynor and Robert Town conclude that hospital consolidation leads to higher prices for plans and consumers, modest cost savings for hospital systems, and generally lower quality. Unless you're in the business of running a hospital chain, this is not good news. Nor is this a critique of Gawande's piece. Rather it is a warning that we cannot expect the growth of hospital chains itself to lead us where we want to go. But why, we might ask, are restaurant chains, like the Cheesecake Factory, able to raise quality and reduce both their costs and consumer prices while hospital chains are not? There are two answers. First, the payment system. A key reason cardiologists at the HCA were not dissuaded from conducting all those unnecessary procedures is that they were paid for each one, whether warranted or not. If they were only paid for what was supported by evidence, no doubt they would practice differently. Second, competition. Due to barriers to entry, as hospitals have consolidated, they have gained market share. Faced with insufficient competition, hospital chains can maintain greater profitability even by offering products at a price consumers (and insurers on their behalf) might reject if they had sufficiently good and numerous alternatives. The restaurant industry is more competitive. If the Cheesecake Factory reduced its quality or raised its prices it would lose market share and profit. I'm fairly certain Gawande would agree with me on these points, though I haven't asked him specifically. He'd probably also agree that payment system reforms in the Affordable Care Act (ACA) are intended to address the very problems found at the HCA, though it remains to be seen to what extent they will work. Increasing competition among hospitals is another challenge and one that comes with its own complexities. Studies have also shown that hospital competition promotes the medical arms race. Hospitals compete not on price and quality but on technology and amenities. This isn't quite what we want either. Could greater hospital competition under a new payment regime actually lead to the types of improvements Gawande would like to see? Maybe, but nobody knows quite how to put all the pieces together. This isn't like putting together a nice meal at the Cheesecake Factory. Health care is much, much harder. (For the record, the Cheesecake Factory is not my idea of high quality, but I concede that in their domain, they do a good job and are rewarded in the market for it.)  

Austin Frakt is a health economist at the Department of Veterans Affairs and Boston University’s Schools of Medicine and Public Health. He blogs on health economics and policy at The Incidental Economist.

As part of our ongoing effort to raise awareness of health services research and increase its application in policy and practice, AcademyHealth has partnered with Austin Frakt, Ph.D., and Aaron Carroll, M.D., M.S., to contribute posts on the subjects of health care costs, delivery system transformation, and public and population health – areas AcademyHealth has identified as a priority in the current policy environment. As regular contributors, they’ll be discussing current events with an eye toward how new and existing research informs the issues.

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