June 16, 2023
Dear Interested Readers,
What Is Behind the Proposed Kaiser/ Geisinger Deal?
You might have heard that Kaiser is buying Geisinger. I have always held both organizations in high regard. While I was leading Atrius Health and Harvard Vanguard Medical Associates, I had close relationships with the physician leadership of both organizations as well as with Group Health of Puget Sound which Kaiser has already acquired. All of our organizations had the same goal, the Triple Aim. In many visits and meetings, we shared ideas about how to lower the cost of care, improve the quality of care, improve the patient experience, and improve the experience of practice for all of our employees. We all practiced some form of quality improvement. We were aligned in our advocacy for universal coverage. Our conversations were never directed at the strategy of system consolidation as a way of achieving the Triple Aim. All of us realized that there were some advantages to size, especially when negotiating with payers and dealing with state and local government, but there were also downside considerations to consolidation.
I have never seen an announcement of a consolidation that I considered completely honest. All the announcements talk about the business efficiencies that will be achieved and how that will benefit patients by reducing the cost of care and improving quality. It has been my observation that improvements in care delivery are hard to accomplish since it requires the blending of practices at the level of people, cultures, and systems. The effort to benefit from consolidation is often “a long run for a short slide.”
While I was CEO of Atrius we welcomed Reliant Medical Group (previously named The Fallon Clinic) into Atrius. It should have been a great success. Jack Dutzer, the CEO of Reliant, one of the best healthcare executives I have ever known, and I were highly aligned in our objectives and respect for one another. Both organizations were on the Epic electronic health record. Both organizations believed in the importance of primary care. Our service areas were contiguous and complementary but did not overlap in a way that threatened any practice, but the alignment did not last because in truth it was a marriage made primarily to improve finances in a market that had one very large and wealthy system that was seeking to get even larger and wealthier. Financial concerns not the improvement of quality, cost, or the patient experience drive most consolidations or takeovers. Without a dim financial outlook or the presence of a very threatening competitor in the market, few practices seek to find a merger partner.
My last big effort as the CEO of Atrius was a two-year project to complete a three-way collaboration between Atrius, The Lahey Clinic, and The Beth Isreal Deaconess Medical Center. I was motivated to seek the alliance because after studying the external challenges beyond our control, I was convinced that hard times were ahead just a few years down the road. I felt that the project would take a few years to yield success, and it was good to get started while things were still “good.”. At the time we had favorable contracts, cash and property assets, market respect, and a positive bottom line, but there were real reasons to imagine that things would eventually get difficult. I can testify to the fact that one of the hardest tasks is to convince others while things look good that they should look over the horizon and imagine what might be just out of sight but coming toward them.
I was concerned that over the next few years, we were likely to encounter financial difficulties beyond our control because of market forces. I knew that things could deteriorate quickly because of my experience with the financial collapse of Harvard Pilgrim Health Care in 1999. At the time Atrius looked strong and it seemed like a good idea to seek an affiliation from a position of strength. We worked hard to find a three-way agreement over two years and many meetings. We employed a host of consultants and lawyers in the effort, but the effort failed in 2013 despite all of the work and the clarity in my mind that it would be good for all three organizations and for our patients and providers, as a way to balance the market against the strength of Partners Healthcare, now called Mass General Brigham. Eventually, several years later (2017), the BIDMC and Lahey did combine their efforts, and Atrius was acquired by Optum (2022).
I suspect that Group Health joined Kaiser primarily for financial protection, and it is my assumption that finance will turn out to be the primary reason for the Kaiser/ Geisinger marriage. Robert Pearl, MD, a premier medical writer, and the former CEO of the Permanente Medical Group, the practice affiliate of Kaiser Health, recently published a speculative piece about the Kaiser/ Geisinger deal in Forbes magazine where he is a regular contributor. The article was entitled “What Kaiser’s Acquisition Of Geisinger Means For Us All” which was pretty good “clickbait” for me. In the article, Pearl said some very important things and provided a knowledgeable analysis of the proposed merger and what it indicated about the future of healthcare.
First, he said that Kaiser is forming “a new subsidiary, Risant Health, of likeminded, nonprofit, value-oriented, community-based health systems anchored in their respective communities.” That sounds good, but what does it really mean, and would Geisinger be interested if it were not projecting future financial problems?
After announcing Risant, Pearl said that questions had been put to him “from reporters, policy experts, and healthcare executives,” in multiple phone calls from around the country. He goes on to say that after “hundreds of calls,” there were three main questions:
- Why Did Kaiser Acquire Geisinger?
- How Much Value Will Kaiser Give Geisinger?
- Will The Deal Work?
To answer the “why” question Peral speculates that despite its reputation for quality and efficiency Kaiser does not yet get recognized as a “national” organization. It would have a more secure place at the “national table” if it were not considered to be a regional player (West Coast and Mid-Atlantic). Pearl thinks that is important because:
In recent years, companies like Amazon, CVS and Walmart have been scooping up organizations that provide primary care, telehealth, home health and specialty care services. These “retail giants” are spending up to $13 billion per acquisition. And they’re consuming already-successful healthcare companies… Like an army preparing for war, these corporate behemoths are amassing the components needed to battle the traditional healthcare incumbents and ultimately oust them entirely.
That sounds grim to me. The Geisinger deal is only a first step, and perhaps a risky one since it doesn’t bring a huge number of patients, and Geisinger is having financial problems. Pearl says:
The Geisinger deal expands Kaiser’s footprint, adding 600,000 patients, 10 hospitals and 100 specialty and primary care clinics. These assets lend gravitas, even though Geisinger also comes with a 2022 operating loss of $239 million.
That operating loss, and perhaps the reality that the future may even be worse for Geisinger may explain why Geisinger was available, or as Pearl says:
The lesson to draw from this first question is clear: size matters. The days of solo physicians and stand-alone hospitals are over. Nostalgia for medicine’s folksy, home-spun past is understandable but futile. To survive, healthcare players must get bigger quickly or team up with someone who can.
That was a succinct description of what I thought when I proposed our merger with BIDMC and Lahey. I think that Pearl’s questions about the Kaiser/ Geisinger affiliation bring up several other questions. What has happened over the last twenty years to put so many practices and hospitals at risk? Why have very competent provider organizations known for quality and efforts to achieve the Triple Aim become financially vulnerable? Why has size become so important? Does getting bigger guarantee an end to worries, or does it just initiate a whole new set of concerns? Will the pursuit of size improve the care people receive and move us closer to the care our nation needs? Now, back to Dr. Pearl and his second consideration, “How Much Value Will Kaiser Give Geisinger?” Pearl continues:
Geisinger’s Pennsylvania-based hospitals and clinics have been locked in territorial battles for years with surrounding health systems. More recently, the pandemic, combined with staffing shortages and national inflation, have challenged Geisinger’s clinical performance and eroded its bottom line.
Assuming Kaiser plans to invest roughly $1 billion in each of the four to five health systems it’s planning to acquire, that surge in cash inflow will provide Geisinger with temporary financial safety. But the bigger question is how will Kaiser improve Geisinger’s value-proposition enough to grow its market share?
In public comments, Kaiser leaders spoke of the acquisition as an opportunity for Risant to “improve the health of millions of people by increasing access to value-based care and coverage, and raising the bar for value-based approaches that prioritize patient quality outcomes.”
Kaiser’s statement is consistent with the aspirations presented with every proposed acquisition of which I have ever had knowledge. I have some personal knowledge of Geisinger’s market since for more than a decade I was on the board of Guthrie Health which lies just to the north and west of much of Geisinger’s practice area. Guthrie is a very strong organization. It has just announced that it has signed an agreement to acquire Our Lady of Lourdes Hospital in Binghamton, New York from Ascension Healthcare. Despite Guthrie’s success, financial strength, and growth, it is hard for me to imagine it as a stronger and more durable system than Geisinger. I would imagine that Geisinger might wish to acquire Guthrie with cash it gets from Kaiser, but such a move has never seemed possible before, and bringing the two organizations together would require enormous managerial talent and energy that could probably be directed at other projects that would be more likely to improve the experience of care in the area.
In the answer to this second question Pearl brings up another issue that has been both a strength and, I believe, a liability for Kaiser over the years. Kaiser owns the hospitals and the insurance function, but its physicians are independent members of the Permanente Medical Group that Pearl once led.
Many of the experts I spoke with understand Kaiser’s value intent. But they question how Kaiser can deliver on that promise since The Permanente Medical Group (TPMG) wasn’t involved in the deal…I agree with those who’ve expressed doubt that Kaiser, alone, will be able to significantly improve Geisinger’s clinical performance.
I wonder, and doubt, that Geisinger’s problem was its clinical performance. I think external factors are more often the cause of difficulties for groups that have had expertise in the past. Dr. Pearl is justly proud of the care that the Permanente Group provides, but I am not convinced that it is better than Geisinger provides, or even if it was and Kaiser could transfer some “secret sauce” to Geisinger that Geisinger’s woes would evaporate. In my mind, it is very important for Kaiser to be sure that attempts to consume Geisinger don’t undermine the good work that it currently does.
Pearl does add a point that I totally agree with:
…insurers don’t work directly with individual doctors to coordinate medical care or advance clinical solutions on behalf of patients. And without strong physician leadership, the pace of positive change slows to a crawl…
For decades, the secret sauce for Kaiser Permanente has been the cohesive success of its three parts: Kaiser Health Plan, Kaiser Foundation Hospitals and The Permanente Medical Group.
I say a loud “AMEN” to Pearl’s next two statements which I believe are the most powerful contributions of his piece. I have bolded the big concepts.
The big lesson: insurance, by itself, doesn’t drive major improvements in medicine. It must be a combined effort between forward-looking insurers and innovative, high-performing clinicians.
But there’s another takeaway here for doctors everywhere: now is the time to join forces with other clinicians in your community. Together, you can collaborate to improve clinical quality. You can augment access and make care more affordable for patients. Simultaneously, this is the time for the insurers and the retail giants to figure out which medical groups can deliver the best care and make the best partners. Neither side will flourish alone.
Pearl has structured his piece so that each of his points cascades into the next observation. His third epiphany arises from the obvious question, “Will The Deal Work?” The obvious answer is: “It depends on…” Here I find myself aligned again with Pearl’s skepticism:
…as I look years down the road, one part of the deal, in particular, gives me doubt.
Today, Geisinger uses a hybrid reimbursement model—blending both “value-based” care payments with traditional “fee-for-service” insurance plans. In addition to offering its own coverage, it contracts with a variety of other insurance companies. Rarely have I seen this scattered approach succeed.
Most healthcare observers understand the inherent flaw in the “fee for service” (FFS) model is also its greatest appeal to providers: the more you do the more you earn. FFS is how nearly all financial transactions take place in America (i.e., provide a service, earn a fee). In medicine, however, this financial model results in frequent over-testing and over-treatment with minimal if any improvement in clinical outcomes, according to researchers.
The “value-based” alternative to FFS involves prepaying for care—a model often referred to as “capitation.” In short, capitation involves a single fee, paid upfront for all the medical care provided to a defined population of patients for one year based on their age and health status. The better an organization at preventing disease and avoiding complications from chronic illness, the greater its success in both clinical quality and affordability.
I wanted to hug Pearl for his next statement. All forms of capitation are not equal. It makes all the difference in the world where the capitation goes. It works well to reduce the cost of care and improve outcomes if the capitation and the risk go to the doctor. If the risk goes to the insurer, then the doctors get paid “fee-for-service” and the benefits of capitation in the effort to control misuse and overuse are largely lost. I have added some “bolding” to what Pearl says much more succinctly:
Within the small world of capitated healthcare payments, there’s an important element that often gets overlooked. It makes a big difference who receives that lump-sum payment.
In the case of Kaiser Permanente, capitated payments are made directly to the medical group and the physicians who are responsible for providing care. In almost every other health system, an insurance company collects capitated payments but then pays the medical providers on a fee-for-service basis. Even though the arrangement is referred to as capitated, the incentives are overwhelmingly tied to the volume of care (not the value of that care).
In a mixed-payment model, doctors and hospitals invariably prioritize the higher paying FFS patients over the capitated ones…
Geisinger has walked this tightrope in the past, but as economic pressures mount, I fear doctors will find the two sets of incentives conflicting and difficult to navigate.
The big lesson: as financial pressures mount, the most effective approaches of the past will likely fail in the future. All healthcare organizations will need to make a decision: keep trying to drive volume and prices up through FFS or shift to capitation. Getting caught in the middle is a prescription for failure.
I should add that it is usually the case that when the medical group holds the risk, the doctors are salaried and incented with productivity incentives that cover collective organizational objectives and personal productivity. It’s not a perfect system, but when done well, it outperforms fee-for-service in every aspect of the effort to achieve the Triple Aim.
I can report from personal experience as a clinician and as a manager, that as long as we were capitated we were a high-performing organization with the lowest costs and highest quality in our market. When we were “forced” by the market to accept more and more fee-for-service business our troubles intensified, and many of our clinicians shifted from being oriented around the organization’s mission and objectives toward maximizing personal income. Many doctors made the transition well and practiced ethically with their primary focus on the patient, but there was tension between those oriented to our mission and those for whom personal income was an attraction. I always felt that the tension was greatest between primary care doctors and procedural specialists who had the greatest upside income opportunities. It would be unfair to say that fee-for-service payment is the only source of dysfunction in medical organizations, but as Dr. Pearl implies, FFS doesn’t make the job of limiting excessive care and focusing on primary care and prevention easier.
Pearl led with three questions, but he did have one final observation that should be of interest to us all. He had noted earlier that one of the possible reasons for Kaiser to grow was to remain relevant as new players like Amazon, CVS, and Walmart sought to become deliverers of care. He finishes by returning to the changes that these players will drive.
Examining the healthcare acquisitions made by Amazon and CVS, it’s clear these giants have decided to move aggressively toward a model more like Kaiser Permanente’s—one that brings insurance, pharmacy, physicians and sophisticated IT systems under one roof. These companies, along with Walmart, are aggressively marching down a path toward capitation, focusing on Medicare Advantage (the value-based option for Americans 65+) as an entry point.
So far, Geisinger has hedged its bets by maintaining a hybrid revenue stream. I doubt they can do so successfully in the future. That brings us to a final question.
Over the next decade, hospital systems, insurers and retailers will battle for healthcare supremacy. The most recent Kaiser-Geisinger deal reflects an industry that’s undergoing massive change as health systems face intensifying pressure to remain relevant.
Dr. Pearl is business oriented. He is writing for Forbes magazine which is read by business people. I agree with him that things are changing and that large well-funded organizations are a huge challenge for more traditionally oriented physicians and healthcare organizations. How the future will evolve should worry a lot of healthcare executives and physicians, but we should all remember that it is not just about doctors and hospitals. The focus should be on what is best for the patient and that is how Pearl finishes his analysis. I have bolded his blanket concern about practice:
The most important issue to resolve is whether these shifts will ultimately help or harm patients. I’m optimistic for a positive outcome.
Whether or not the retail giants displace the incumbents, they will redefine what it takes to win. For all their faults, companies like Amazon and Walmart care a lot about meeting the needs of customers—a mindset rarely found in today’s healthcare world. As these companies grow ever larger, they’ll place consumer-oriented demands on doctors and hospitals. This will require care providers to deliver higher quality care at more affordable prices.
Once again Robert Pearl has used his insights into medicine and business to show us that the path we are on may seem logical and even unavoidable, but we are like the fellow who made a wrong turn several miles back, and every turn and new road he takes in his persistent attempts to get to his desired destination just take him further away from where he wants to go. We are now more than seventy-five years past the moment when President Truman tried to get us to accept near-universal coverage through a government-sponsored system of care. The AMA was against it then and has been against almost every other attempt to use public policy to improve the health of the nation. Barak Obama crafted the ACA with the history of the AMA’s objections to change front and center in his mind. Many of the inadequacies of the ACA arise from the compromises Obama had to make to get the weak support of the AMA. In a 2022 article in The New Yorker entitled “Inside the American Medical Association’s Fight Over Single-Payer Health Care: A long-standing battle highlights a profession’s political transformation,” the author Clifford Marks, MD writes:
In 1932, an editorial in the Journal of the American Medical Society denounced a proposal for government-backed voluntary health insurance as “an incitement to revolution”; three decades later, in response to a different proposal, the A.M.A. produced “Ronald Reagan Speaks Out Against Socialized Medicine,” an LP on which the future President warned listeners that they would spend their “sunset years” telling their grandchildren “what it once was like in America when men were free.” Starr told me that physicians “had a lot of cultural authority,” and weren’t shy about using their community contacts to shift public opinion. In 1949, Gallup found that fifty-nine per cent of Americans supported Harry Truman’s plan for a payroll-tax-financed, government-run insurance system; the A.M.A. charged each member an extra twenty-five dollars to finance a lobbying campaign, and by its end support for the proposal had fallen to twenty-four per cent. In his memoirs, Truman wrote that his defeat at the hands of the A.M.A. troubled him more than any other in his Presidency. “There are a lot of people in Congress who jump when the American Medical Association cracks the whip,” he once said.
I should add that Marks, who is a physician at the Beth Isreal Medical Center in Boston does imply that change may be underway within the AMA, but it’s my opinion that it will take a world of transformation for the AMA to make up for more than a century of focusing on maximizing physician’s financial and professional interests through its use of its political power rather than advocating for policies that promote the health of the nation. I imagine that there will be moss on my tombstone before any process of reform within the AMA is complete.
Pearl’s analysis of the proposed affiliation of two of our best medical organizations in an attempt to survive underlines just how tenuous our situation has become. What should concern us even more than the state we are in is that we are not taking effective measures to turn things around and go back to where we made the wrong turn. I will write more about that next week.
It Has Been An Education
As I reported last week, our trip to France ended in a COVID haze, but it is still good to be home. We did not know we had COVID when we boarded our flight home in Marseille. There was every reason to believe that we were “sharing” a viral URI that was an annoyance but not a public health threat. Was not COVID over? I had a dental appointment the first morning back at home. I took some pseudophed to diminish my symptoms and had no difficulty with the appointment. It was not until that afternoon that our friend and travel companion called to say that he had COVID and that we should test. When those two little lines showed up on the test strip I was flabbergasted, and immediately felt guilty for all those on the plane and at the dental office whom I had exposed.
We took Paxlovid and suffered its side effects. All I can say is that for five days I felt like I had been sucking on an empty tin can. Some brain fog and real fatigue have persisted now for more than a week. I do sleep very well, but wake up with litte energy for the day.
Despite my infection and fatigue, I am addicted to daily exercise. Today’s header was taken during a shortened walk that I took earlier this week. I like living in the vicinity of cows. Mount Sunapee is in a haze that is probably from the wildfires in Canada. During our COVID RV trip in 2020, we passed through the Grand Tetons, and the appearance of mountains plus haze was obvious then as wildfires blazed in Oregon, California, and Washington states.
I was happy for my wife when she had a negative test on Wednesday, but disappointed that mine remained positive. I plan to test again tomorrow. My conclusion is that COVID isn’t over. Did I bring home some new variant from Europe? Even if it was nothing new, it is not something that I would wish on anyone. I will be wearing my mask, and avoiding crowds even after I test negative. One of my sons is recovering from his third episode despite being vaccinated and boosted. It was his worst episode and required a trip to an emergency room for dyspnea. So, take my advice, be careful, avoid being in crowds in closed spaces, and continue to mask up!
Be well,
Gene
