With health care, is bigger better? - Column

In the quest for clout, provider and employer coalitions are growing larger. Will this cure what ails the system?

You won't hear it talked about in the back rooms of the Capitol. Nor does the business community seem particularly concerned about it. But when you listen to consumers on the subject of health reform, fear of what I'll call "bigness" is a constant refrain.

Sometimes this anxiety is expressed outright, as in "the government or big brother is going to take over" or "I'm going to have to join some giant HMO and stand in line forever." More often, though, you have to read between the lines. It's in the frustration with paperwork from big insurers. It's in the problems encountered at a big sprawling hospital complex; or it's in the exasperation voiced over being seen by three different doctors in three months at an HMO.

Consumers have reason to be concerned. Health reform has the potential to make this big problem bigger. In the grand American tradition, current proposals to reform the health care system rely in large part on making the system more efficient and cost effective by consolidating power and control.

For example, most proposals would virtually wipe out hundreds of smaller health care insurers that for years have sold indemnity coverage--and, of course, thrived on risk selection. Left standing in the year 2000 would be the "big five" insurers--Aetna, CIGNA, Prudential, and Met Life, and The Travelers--plus the Blues and perhaps a dozen regional insurance carriers, most analysts agree.

The big five and the Blues plan to survive and prosper not by offering indemnity coverage but by expanding managed care. Toward that end, they are either purchasing or partnering with hospitals, group practices, HMOs, PPOs, nursing homes, and home health agencies at a furious pace.

Hospitals and physician groups are doing the same thing. Big hospitals are merging with or buying smaller ones and allying themselves with HMOs, local clinics, and doctors' groups. In Minneapolis-St. Paul, for example, the area's 24 hospitals have coalesced into three networks, which are aggressively buying up physicians' practices.

Managed care companies are also thinking big. Kaiser counts enrollment of 6.6 million lives in 12 plans; the Blues have 6 million enrollees in 80 plans; and U.S. Healthcare has 1.5 million individuals in eight plans. Managed care consultant Barry Scheur, president of the Scheur Management Group, in Newton, Mass., predicts that by the year 2000 only four to seven key managed care players will survive in any major metropolitan area.

Reform also is targeted at creating big health insurance purchasing pools. Even if they start out as voluntary, as looks increasingly likely, by 2000 these cooperatives could serve 20% to 40% of the population. They would have enormous market clout, which is the whole idea.

Employers too are seeking bigness, in the guise of employer purchasing coalitions. Not content with being big players now, many large companies, such as Federal Express, General Mills, General Electric, and Mack Trucks, are joining with other big companies to present a united front to providers. Most coalitions started out attempting to forge partnerships with providers and to push them into managed care and discounting. But with the rules of the game changing rapidly, many coalitions are poised to become more active, selective buyers. It's feasible that in seven to 10 years in some markets, five or six large purchasers would be left after health reform is implemented fully: one purchasing pool serving half of small businesses and four or five employer coalitions.

Is all this consolidation and bigness good for what ails the health system, for employers, and for consumers?

Mergers and consolidations have, historically, improved efficiency and competitiveness in industries undergoing rapid change, or when it is simply not feasible to have dozens of companies in a particular field. They can produce better products and provide better services at cheaper prices. A good recent example is the telecommunications industry in which mergers and acquisitions will help bring an intelligible set of products and services to market. Lots of little companies couldn't do that. Likewise, industries in which a few big players are essential include the airlines, auto manufacturing, oil, and TV networks.

But it's also true that a trend toward bigness for its own sake is one of the hallmarks of Western capitalism. It's the reason a strong government with antitrust and wide regulatory powers has evolved in the United States. It's why Ma Bell had to be carved up. In short, too much concentration of capital and control is not always good. Consider the computer industry. IBM and Apple grew fat and too fast, respectively. A new breed of upstarts came along, slashed prices, improved the product, served customers better, and stole market share.

Too much concentration can also yield negative social effects. Take food and hotel chains. McDonald's, Marriott, Hyatt, Wendy's, Pizza Hut, Day's Inn, Taco Bell, and Ramada offer popular products and services at attractive prices. And these companies compete fiercely. But they have come to offer homogenized products. And they have driven hundreds of small and more diverse restaurants and hotels out of business, and they have changed the American landscape in ways that are not always pleasing. In short, they represent American corporate bigness at its best and worst.

Will consolidation in health care yield better, more efficient, and cost-effective services? Or will it produce too much concentration of power, an excess of homogenization, and less innovation, flexibility, diversity, and quality?

It's too early to tell, but there's a danger it will be the latter. The aim of managed competition is to realign the health care market to compel health plans and integrated networks to compete locally, and much more intensely, on both price and quality. But many of those networks will be owned or controlled by big insurers, big managed care companies, and big hospital chains. Inherent in that structure is the risk that unprofitable local plans will get less attention and fewer resources. Is Richard Scott, CEO of Columbia/HCA Healthcare Corp., owner of some 200 hospitals and 96 outpatient surgery centers nationwide, really going to be focused on local needs?

No doubt many hospitals and smaller HMOs will benefit from bigness. Deep pockets will upgrade decaying facilities and rationalize the purchase of technology. But the risk seems high that in the process hospitals and HMOs--and even physicians--will lose their community roots and spirit. Many Americans grew up viewing their community hospital and local doctor's office as a special place, a sanctuary run for the health and well-being of man, not the almighty dollar.

Delivering health care also is different from selling hamburgers and pizza, computers, cars, or anything else. An obvious point, yes. But it hasn't been dear that the new breed of health care entrepreneur understands it. Health care is built around two professions--medicine and nursing--that daily deal with the most intimate personal issues and difficult life and death questions. Forcing them to be accountable is welcome and overdue. Forcing them to be just another consumer product controlled and sold by big companies won't work. Employers and their workers want a better health care product, fairly priced and user-friendly. They don't want impersonal bigness.

COPYRIGHT 1994 A Thomson Healthcare Company
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