By KMI BELLARD

I’m thinking about electric vehicles (EVs)…and healthcare.

Now, mind you, I don’t own an EV. I’m not seriously thinking about getting one (although if I’m still driving in the 2030’s I expect it will be in one). To be honest, I’m not really all that interested in EVs. But I am interested in disruption, so when Robinson Meyer warned in The New York Times “China’s Electric Vehicles Are Going to Hit Detroit Like a Wrecking Ball,” he had my attention. And when on the same day I also read that Apple was cancelling its decade-long effort to build an EV, I was definitely paying attention.

Remember when 3 years ago GM’s CEO Mary Barra announced GM was planning for an “all electric future” by 2035, completely phasing out internal combustion engines? Remember how excited we were when the Inflation Reduction Act passed in August 2022 with lots of credits and incentives for EVs? EVs sure seemed like our future.

Well, as Sam Becker wrote for the BBC: “Depending on how you look at it, the state of the US EV market is flourishing – or it’s stuck in neutral.” Ford, for example, had a great February, with huge increases in its EV and hybrid sales, but 90% of its sales remain conventional vehicles. Worse, it recently had to stop shipments of its F-150 Lightning electric pickup truck due to quality concerns. Frankly, EV is a money pit for Ford, costing it $4.7b last year – over $64,000 for every EV it sells.

GM also loses money on every EV it makes, although it hopes to make modest profits on them by 2025.  Ms. Barra is still hoping GM will be all electric by 2035, but now hedges: “We will adjust based on where customer demand is. We will be led by the customer.”

In more bad news for EVs, Rivian has had more layoffs due to slow sales, and Fisker announced it is stopping work on EVs for now. Tesla, on the other hand, claims a 38% increase in deliveries for 2023, but more recently its stock has been hit by a decline in sales in China. It shouldn’t be surprising.

As Mr. Meyer points out:

The biggest threat to the Big Three comes from a new crop of Chinese automakers, especially BYD, which specialize in producing plug-in hybrid and fully electric vehicles. BYD’s growth is astounding: It sold three million electrified vehicles last year, more than any other company, and it now has enough production capacity in China to manufacture four million cars a year…A deluge of electric vehicles is coming.

He’s blunt about the threat BYD poses: “BYD’s cars deliver great value at prices that beat anything coming out of the West.”

The Biden Administration is not just sitting idly.

Last December the Administration proposed rules that would limit Inflation Reduction Act subsidies going to materials from China – it doesn’t just make cheap EVs, it makes cheap batteries – and last week warned that internet-connected Chinese vehicles, including EVs, could pose a threat to national security: “China’s policies could flood our market with its vehicles, posing risks to our national security…Connected vehicles from China could collect sensitive data about our citizens and our infrastructure and send this data back to the People’s Republic of China. These vehicles could be remotely accessed or disabled.”

And, of course, underprice American-made vehicles.

Mr. Meyer identifies the core problem for at least Ford and GM: “Specifically, Ford’s and GM’s earnings rest primarily on selling pickup trucks, S.U.V.s and crossovers to affluent North Americans…In other words, if Americans’ appetite for trucks and S.U.V.s falters, then Ford and GM will be in real trouble.”

He believes that President Biden will need to impose trade restrictions, but not blindly:

Mr. Biden must be careful not to cordon off the American car market from the rest of the world, turning the United States into an automotive backwater of bloated, expensive, gas-guzzling vehicles. The Chinese carmakers are the first real competition that the global car industry has faced in decades, and American companies must be exposed to some of that threat, for their own good. That means they must feel the chill of death on their necks and be forced to rise and face this challenge.

It’s the 1970’s all over again, when American was selling over-priced, gas-guzzling sedans while Japan and South Korea were offering cheaper, more energy-efficient, higher quality compacts. Now it is China and EVs versus our internal combustion pickups & SUVs. Look how that turned out for Detroit.

The “chill of death” indeed.

———–

When I think of the Detroit Big Three analogy for healthcare, I think of hospitals (30% of all spending), clinicians (20%), and pharmaceutical companies (9%). When I think about the affluent Americans buying the big SUVs/pickups, I think about the small percent of the population who account for most of spending: the top 1% accounts for 24% of spending, the top 5% for 51%, and the top 10% 67%. The bottom 50% of the population accounts for 3%.

The healthcare system is designed around the big spenders, and price is seemingly no object for them (although, of course, unlike the affluent and their big vehicles, we all pay for the big healthcare spenders through our premiums and taxes). If we magically made them healthy (which seems like a good thing), the healthcare system would collapse (which seems like a bad thing).

Fifteen or so years ago one might have hoped that EHRs and the digitalization of healthcare generally might be the equivalent of EVs hitting the automotive industry. That didn’t happen; as it is wont to do, healthcare just absorbed them and kept making things more expensive. Today one might hope that AI will make everything more efficient, more effective, and, goodness knows, less expensive, but I’m not holding my breath. Right now, I don’t see anything that will “deliver great value at prices that beat anything coming out of the West.”

I want the US to be a leader in EVs, and other clean energy technologies. I want us to be a leader in all the 21^st century technologies, including those, AI, quantum computing, robotics, nanotechnology, synthetic biology, and materials science, to name a few. And I want our healthcare system to be a 21^st century leader too; as I like to say, I want it to be more familiar to someone from the 22^nd century than to someone from the 20^th century, as I fear is still true today.

Unfortunately, I’m still not sure what the thing is that will give healthcare “the chill of death” and force it to be better.

By MATTHEW HOLT

I was invited on the Health Tech Talk Show by Kat McDavitt and Lisa Bari and I kinda ranted (go to 37.16 here) about why we don’t have primary care, and where we should find the money to fix it. I finally got around to writing it up. It’s a rant but a rant with a point!

We’re spending way too much money on stuff that is the wrong thing.

30 years ago, I was taught that we were going to have universal health care reform. And then we were going to have capitated at-risk entities. then below that, you have all these tech enabled services, which are going to make all this stuff work and it’s all going to be great, right?  

Go back, read your Advisory Board Company reports from 1994. It says all this.

But (deep breath here) — partly as a consequence of Obamacare & partly as a consequence of inertia in the system, and a lot because most people in health care actually work in public utilities or semi-public utilities because half the money comes from the government — instead of that, what we’ve got is this whole series of massive predominantly non-profit organizations which have made a fortune in the last decades. And they’ve stuck it all in hedge funds and now a bunch of them literally run actual hedge funds.

Ascension runs a hedge fund. They’ve got, depending who you believe, somewhere between 18 billion and 40 billion in their hedge fund. But even teeny guys are at it. There’s a hospital system in New Jersey called RWJ Barnabas. It’s around a 20 hospital system, with about $6 billion in revenue, and more than $2.5 billion in investments. I went and looked at their 990 (the tax form non-profits have to file). In a system like that–not a big player in the national scheme–how many people would you guess make more than a million dollars a year?

They actually put it on their 990 and they hope no one reads it, and no one does. The answer is 28 people – and another 14 make more than $750K a year. I don’t know who the 28^th person is but they must be doing really important stuff to be paid a million dollars a year. Their executive compensation is more than the payroll of the Oakland A’s.

On the one hand, you have these organizations which are professing to be the health system serving the community, with their mission statements and all the worthy people on their boards, and on the other they literally paying millions to their management teams.

Go look at any one of these small regional hospital systems. The 990s are stuffed with people who, if they’re not making a million, they’re making $750,000. The CEOs are all making $2m up to $10 million in some cases more. But it also goes down a long way. It’s like the 1980s scene with Michael Douglas as Gordon Gecko in Wall Street criticizing all the 35 vice presidents in whatever that company was all making $200K a year.

Meanwhile, these are the same organizations that appear in the news frequently for setting debt collectors onto their incredibly poor patients who owe them thousands or sometimes just hundreds of dollars. In one case ProPublica dug up it was their own employees who owed them for hospital bills they couldn’t pay and their employer was docking their wages — from $12 an hour employees.

Now despite the ACA hoping to change American health care, these hospital systems make all their money not by doing primary care, but by running their high intensity services — cardiology, neurology, orthopedics, general surgery and all the rest of it. They recruit superstar surgeons who keep the cash tills running—even if they came from doing quasi-fraudulent care down the street. And they’ve spent the last decade growing.

I used to think – and this was the intent of the ACOs under the ACA –that this would be sorted out by capitation and value-based care, but it just hasn’t happened. Hospital systems spent the last couple of decades growing by buying primary care doctors, running their practices at a loss and capturing all their referrals for the expensive procedural stuff. In fact there’s a term for this—they call it preventing leakage.

I’ve been looking at this for a while, and then the real crowning thing that pissed me off, the cherry on top of the sundae if you will, was the answer as to why do they have all this money in reserves, or in their hedge funds? Why does a small health system have $2 billion plus sitting in the stock market or sitting in cash? You know why? Well, presumably it’s there for a rainy day, right? When something bad happens, they have money and they can sustain themselves, to run their mission.

Well we had a rainy day starting in March, 2020. Inpatient and elective care got shut down under Covid and they all started losing massive amounts. What happened? They said, now we need a bailout. That was a huge part of the CARES Act.

The only two organizations I respected at that time were for-profit chain HCA and Kaiser Permanente who were given bailout money but  gave it back because they said they didn’t need it. But many more were like Commonspirit with 140 hospitals across the country, which got $1.5 billion. Hundreds of millions went to hundreds of these individual systems.

I haven’t done this scientifically, but we know that in their “reserves” Ascension has got $40 billion, UPMC has got $12bn, Kaiser’s got a ton as well. A medium sized systems like that RWJBarnabas in New Jersey’s has $2.5 billion, and one in Minnesota called Essentia, which I’d never heard of until last week, has more than $600 million in its reserves. There is probably $250 to $350 billion sitting out there on the balance sheets of every non-profit hospital in America. And if you chuck in the health plans, it’s probably way more. There’s likely an Apple or Google size cash mountain sitting out there

If you started American health care from scratch what would you do? You would give everybody primary care. If you look at the people who actually have been moving the needle on controlling hypertension and managing diabetes, it’s all people with a primary care approach, who spend a lot more money on primary care than on later stage specialty care for the people who already are sick.

I heard a great talk from Bob Matthews who works with an inner-city medical group with a mostly low income African America population, helping them manage hypertension. The best at doing this in the state of California is of course Kaiser where 70% of people with hypertension are within official guidelines and are “under control”. The state average is below 40%. But with this tough population Matthews’ group was at 94%. We know how to do it properly, but we don’t spend any money on it.

So how much do we spend on FQHCs which are basically primary care for poor people. I asked ChatGPT and the answer is $38 billion.

If my guess is correct there’s $300 plus billion in these hospital reserves sitting there not doing anything other than buying Nvidia stock and yet it costs only $38 billion a year to run the FQHCs. You could add another $38 billion a year for probably ten years just by confiscating all the reserves and the hedge funds of the rich systems–which they don’t seem to be doing anything with!

I understand that this is America. You will see no finer example of regulatory capture than the AHA and every single hospital in every single congressional district making sure that there is no such thing as a real assault on their balance sheet. And if things go in the least wrong, you know, they have all these employees and they’re very important for the local economy and yada, yada. And changing that is unbelievably difficult in America.

Bu at some point it’ll have to change.

Bob Matthews, who I mentioned earlier, is from a company called MediSync, which supports a bunch of primary care groups. They essentially use intelligent machines, telling the doctors which drugs the people with hypertension should be on and how they should be treated, and help the primary care docs match the patients to the guidelines. If you actually do that, you have a much better chance of actually helping people avoid the problems of hypertension, diabetes et al. There’s a bunch of stuff you have to do. It requires proper patient outreach and yada, yada, yada. It’s not easy, but you can do it. And we have failed to do it because more than half the people in this country don’t have access to a primary care doctor.

I remember at Health 2.0 years ago I asked Marcus Osborn why Walmart got into health care delivery. He said that they surveyed Walmart shoppers, asking how many of them had a primary care doctor? And about 60% of them said they have one, 40% said they didn’t have one. Then they asked the 60% what the name of their primary care doctor was, and half of them didn’t know it. So not much of a relationship there! So at that point they said, hang on, perhaps we should be investing in primary care. And that’s why Walmart, Walgreens, CVS et al are now in the primary care business — because they think there’s an opportunity because the current incumbents have done it so poorly.

And why would the current incumbent big health systems bother to do what Bob Matthew’s groups did? Because all they’re interested in is getting the expensive people into their facilities to do expensive stuff to them in order to generate money, which then ends up in their hedge fund.

This is so screwed up.

We’re spending so much more than anybody else. We do need hospital systems. We do need intensive inpatient stuff. We need to figure out how to fix cancer. But we need to do less of it and we need to pay less for all the stuff we’re doing. We’re spending way too much, when we’re paying 10 times what everybody else in the world is paying for drugs. They call it the free market. But there isn’t one. There’s price fixing and price setting.

Every other country does price setting. And we do price fixing by the companies who make Ozempic and Humira, and stents and hospital beds and then of course by the systems that provide all these services.

We shouldn’t be putting up with this. And expecting a free market approach to get it right means that we’re relying on people who haven’t figured it out for years. Like employers.

Healthcare is a regulated market. Our primary payer is the fricking federal government, it’s not the free market. I’m trying to connect the fact we need to spend money in places it’s not being spent while there’s this obvious source of money sitting there being managed by hedge fund guys.

Literally, the former CEO of Ascension actually moved over to the hedge fund and is paying himself like $12 million bucks a year to manage the investment. I mean, good luck to him. No one’s stopping him. But at some point, we’ve got to say, why do we allow this?

Because technically half the money in hospitals comes from the government. At least 50% of their activity is a public utility. If RWJBarnabas was a pure government organization would there be 28 employees making a million bucks a year? I sincerely doubt it.

So let’s have a real evaluation of what money is available and lets take it from the organizations that shouldn’t have it and put it in the place where it’s needed.

Matthew Holt is the publisher of The Health Care Blog

Flawed Accounting for the US Health Spending Problem

By Jeff Goldsmith

Source: OECD, Our World in Data

Late last year, I saw this chart which made my heart sink. It compared US life expectancy to its health spending since 1970 vs. other countries. As you can see,  the US began peeling off from the rest of the civilized world in the mid-1980’s. Then US life expectancy began falling around 2015, even as health spending continued to rise. We lost two more full years of life expectancy to COVID. By  the end of 2022, the US had given up 26 years-worth of progress in life expectancy gains. Adding four more years to the chart below will make us look even worse.  

Of course, this chart had a political/policy agenda: look what a terrible social investment US health spending has been! Look how much more we are spending than other countries vs. how long we live and you can almost taste the ashes of diminishing returns. This chart posits a model where you input health spending into the large black box that is the US economy and you get health out the other side. 

The problem is that is not how things work. Consider another possible interpretation of this chart:  look how much it costs to clean up the wreckage from a society that is killing off its citizens earlier and more aggressively than any other developed society. It is true that we lead the world in health spending.  However, we also lead the world in a lot of other things health-related.

Exceptional Levels of Gun Violence

Americans are ten times more likely than citizens of most other comparable countries to die of gun violence. This is hardly surprising, since the US has the highest rate of gun ownership per capita in the world, far exceeding the ownership rates in failed states such as Yemen, Iraq and Afghanistan. The US has over 400 million guns in circulation, including 20 million military style semi-automatic weapons. Firearms are the leading cause of deaths of American young people under the age of 24. According to the Economist, in 2021, 38,307 Americans aged between 15 and 24 died vs. just 2185 in Britain and Wales. Of course, lots of young lives lost tilt societal life expectancies sharply downward.

A Worsening Mental Health Crisis

Of the 48 thousand deaths from firearms every year in the US, over 60% are suicides (overwhelmingly by handguns), a second area of dubious US leadership. The US has the highest suicide rate among major western nations. There is no question that the easy access to handguns has facilitated this high suicide rate.

About a quarter of US citizens self-report signs of mental distress, a rate second only to Sweden. We shut down most of our public mental hospitals a generation ago in a spasm of “de-institutionalization” driven by the arrival of new psychoactive drugs which have grossly disappointed patients and their families. As a result,  the US  has defaulted to its prison system and its acute care hospitals as “treatment sites”; costs to US society of managing mental health problems are, not surprisingly, much higher than other countries. Mental health status dramatically worsened during the COVID pandemic and has only partially recovered. 

Drug Overdoses: The Parallel Pandemic

On top of these problems, the US has also experienced an explosive increase in drug overdoses, 110 thousand dead in 2022, attributable to a flood of deadly synthetic opiates like fentanyl. This casualty count is double that of the next highest group of countries, the Nordic countries, and is again the highest among the wealthy nations. If you add the number of suicides, drug overdoses and homicides together, we lost 178 thousand fellow Americans in 2021, in addition to the 500 thousand person COVID death toll. The hospital emergency department is the departure portal for most of these deaths. 

Maternal Mortality Risks

The US also has the highest maternal mortality rate of any comparable nation, almost 33 maternal deaths per hundred thousand live births in 2021. This death rate is more than triple that of Britain, eight times that of Germany and almost ten times that of Japan. Black American women have a maternal mortality rate almost triple that of white American women, and 15X the rate of German women. Sketchy health insurance coverage certainly plays a role here, as does inconsistent prenatal care, systemic racial inequities, and a baseline level of poor health for many soon-to-be moms.     

Obesity Accelerates

Then you have the obesity epidemic. Obesity rates began rising in the US in the late 1980’s right around when the US peeled away from the rest of the countries on the chart above. Some 42% of US adults are obese, a number that seemed to be levelling off in the late 2010’s, but then took another upward lurch in the past couple of years. Only the Pacific Island nations have higher obesity rates than the US does. And with obesity, conditions like diabetes flourish. Nearly 11% of US citizens suffer from diabetes, a sizable fraction of whom are undiagnosed (and therefore untreated). US diabetes prevalence is nearly double that of France, with its famously rich diets. 

Causes of obesity include: poverty and racial inequity, poor diet, lack of physical activity, prepared foods laden with processed sugar and salt, food desserts, etc. There has been an eerie correlation between the decline in adult smoking and  the rise in obesity; one lethal anxiety reducer replacing another beginning  in the late 1980’s, right around the time our health costs peeled away from the rest of the world vs. life expectancy. Our high rate of obesity undoubtedly contributed to the US  death toll from COVID. More than 70% of COVID casualties among the US population were obese or overweight. Obesity rendered the infected vulnerable to breathing and circulatory problems aggravated by COVID.

Our Appalling COVID Performance

And of course, per capita deaths from COVID in the US, though not the highest in the world, significantly exceeded the death tolls in most wealthy nations. According to the Economist, we lost  between 1.3 and 1.4 million people to COVID., the third most “excess deaths” of any country (after India and Russia).* Our peer group in the rate of excess deaths per thousand during the pandemic included:  Kazakhstan, Greece, Brazil and Estonia.  

Countries that excelled in combatting this pandemic, which had death rates less than one-fifth of ours- New Zealand, Taiwan, Japan, South Korea- seem to share two traits in common: competent governments capable of acting quickly and decisively to manage public health risks and populations that respected both scientific authority and public health mandates. In the US, we lacked both of these things.

* Excess deaths- deviation above the normal predicted level of deaths in a year- may be a better measure of the pandemic’s effects than “official” COVID deaths, due to complexities in attribution of deaths to specific causes and political interference by government

Toxic Libertarianism

During the pandemic, an ethos of F#@ck You Libertarianism took firm hold in much of the US: “My right to go bowling is more important than your right to be disease free! You are NOT the boss of me!” A gross imbalance between individual rights and responsibilities to the society manifest itself in resistance to masking, social distancing and vaccination. The same objections “libertarians” had to COVID precautions apply equally to traffic signals or drunk driving restrictions, which are also abridgements of individual rights in service of a common good. Basic and sensible public health measures became politicized in a tidal wave of social media-fired nonsense; any doofus with an Internet connection became his or her own epidemiologist or virologist. Public health is now, to many Americans, an elitist conspiracy to deprive them of their freedom. 

And the resistance was well armed.  A not-so-well-regulated militia of local citizens armed with semi-automatic weapons and walkie-talkies turned up to reopen the Crash and Burn Tattoo Parlor in Shepherd, Texas in April, 2020. Radical libertarian militiamen were convicted of a plot to kidnap and murder the Governor of Michigan based on her enforcement of pandemic closures! 

Not a Failed Economy but a Struggling Society

The US has certainly not failed as an economy. A recent Economist analysis show us pulling away from our European peers in wealth generation. It had a similar record in productivity growth. So it isn’t a resource shortage that is holding us back. The US is also  not a failed  state; it fought off a coup attempt after the 2020 federal election, and successfully defended the integrity of its election system in the 2022 mid -terms. 

But US society’s performance has been truly cringe-worthy. Start with a base layer of income inequality and the resultant unresolved racial and social class antagonisms, stir in pervasive obesity, widespread depression,  anxiety, and a high ambient level of anger, add over 400 million lethal weapons, flood with fentanyl and then a lethal virus and you are left with the chart which we began this essay. In the inimitable words of  Walt Kelly’s Pogo: “We have met the enemy and he is us”.

Health System Not Blameless

We cannot and should not absolve our health care system of blame; it is 17.3% of our economy. Our pharmaceutical industry, including wholesalers and retailers, lit the match that exploded into the epidemic of opioid addiction and deaths. But other corporate interests have contributed materially to the broader decline in Americans’ health. Our food industry -fast and otherwise-bears a lot of responsibility for the flood of cheap calories and oversalted prepared foods. Gun manufacturers and Second Amendment absolutists have facilitated not only the explosion of gun ownership, but the inability sensibly to restrict their use.   

And we can thank two generations of distracted state and national political leadership of both parties, and an ethos of “don’t worry, the market will fix it”, for abandoning our inner cities and much of rural America  notably the Deep South and “greater Appalachia”. This malign neglect created economic conditions that narrowed life choices, and a marked disparity in life expectancy depending on where you live (see map below). It also helped foster a deep and festering resentment among those who were left behind which found its expression in the election of Donald Trump and in the rioting that followed the George Floyd murder.   

What Isn’t Going to Matter Much

Is our health system too costly both to individuals and to US society? Absolutely. But the forces that push up the demand for care and generate those health costs are deeply imbedded in a poorly functioning society. The current roster of health policy nostrums favored by academia, the policy commentariat and the consulting community – “price transparency”, further shifting of health costs onto strained household budgets, converting Medicare to a voucher program instead of a “service benefit,” state administered hospital price controls and yet another wave of futile technocratic payment system tinkering for hospital and physician care such as that launched by ObamaCare – do not even graze the underlying problem.

What Might Actually Help

There are things we can do that might make a difference. We can create a safe “third place” besides prison and the acute care hospital for schizophrenics and others of danger to themselves or others (and dramatically reduce incarceration rates while at it). We can do a much better job of keeping the mentally disturbed away from firearms. We can break the cycle of revenge-driven shootings by intervening sensibly at the neighborhood level. We can also do a much better job of managing addiction in a humane and thoughtful fashion, by dramatically expanding both the quality and availability of addiction treatment.   

We can raise taxes on salt and processed sugar added to food, and use the money to fund research into food addiction. We can also reduce taxes on fresh fruit and vegetables to make them more affordable to the poor and near poor.

Most importantly, we can dramatically improve our system of social care, particularly support for family care-giving, as Elizabeth Bradley and Lauren Taylor suggested in their outstanding The American Healthcare Paradox. Anything we can do to strengthen American families’ ability to remain together will make a material difference in Americans’ health and reduce pressure on health spending. And even with all the pandemic related extensions of health coverage, 28.5 million Americans still lacked health coverage in 2022, whose costs of care were shifted onto the rest of us.

Fixing Broken Regional Economies

But none of this will matter much unless we can reverse the outflow of public and investor capital from the abandoned localities in our country, both urban and rural, and create dignified and lasting employment for those that live there. Life expectancy differences closely mirror the health of local economies. If the hospital is the largest employer in many of these communities, as it is, that is not an economically sustainable state of affairs. 

It is not random that the lowest life expectancies in the US (fifteen years or twenty years lower than the national averages in some counties) can be founded in regions of the US such as Appalachia and the Deep South that have struggled economically for more than fifty years. Buz Cooper convincingly argued in his brilliant Poverty and the Myths of Health Reform, that poverty and all its sickness-inducing correlates is the most important driving force in the variation in health spending, not flawed payment schemes or oversupply of care system resources.  

Source: US Census Bureau

The country is so big, both in geography and population, that it is difficult to understand or appreciate how things are for others that are geographically remote from us. But travel writer Paul Theroux, in his Deep South, said he found poverty in the American South that was worse than what he has seen in rural Africa.  There are significant health (and political) consequences for this poverty.  

Given the fragmentation, how we can get Americans to actually focus on helping each other may be the most difficult problem of all. It is galling to see totalitarian societies like China use our current troubles to justify stripping their own citizens of their freedom and dignity and abusing their human rights in the name of “social order”.

By the time those who have been damaged by neglect reach the Emergency Department, it is too late to help most of them.  Our present flawed social accounting system blames the health care system for the cost of patching up the damage from all the problems enumerated above. . You do not need a doctorate in sociology to realize that the problems that generate all those health costs lie much deeper. They are soluble problems.  We must use our wealth, ingenuity and boundless American energy to foster a sense of mutual responsibility that transcends racial, ethnic and social class boundaries to fix these problems.   

An excellent NPR report in March, 2023 entitled “Live Free and Die” explored these issues, as did a similarly excellent April, 2023 piece in the Economist. 

Jeff Goldsmith is the President of Health Futures Inc. This first appeared on his substack

So to celebrate 20 years, we’ll be publishing a few classics for the next week or so. This is one of my faves from the early days of THCB, back in 2006. It’s interesting to compare it with Jeff Goldsmith’s NEW piece from yesterday on vertical integration because at the time a pair of Harvard professors, Michael Porter and Elizabeth Teisberg were telling hospitals to change their operations in a way that seemed to me were going to destroy their business–cut down to one or two service lines they were best at and stop with the rest. McKinsey picked up on this and I went to town on why they were all wrong. In fact in the next decade and a half, despite all the fuss and consulting fees generated, almost no hospital system did anything other than merge horizontally with local competitors, stick up its prices, and buy feeder systems of primary care doctors or ally with/bribe specialists to keep their procedural referrals up. The result is the huge regional oligopolies that we have now. Despite all the ignoring of their advice, I don’t think Porter/Teisberg or McKinsey went broke in that same period.–Matthew Holt

McKinsey, an organization that prides itself on increasing the amount of consulting dollars it gets paid by improving the strategic direction of American business is making another foray into health care.

You may recall their last study on CDHPs was roundly criticized (see Tom Hillard for a good example including a hilarious and brutal smackdown of their research methodology in the last couple of paras), and this time they cleverly aren’t bothering with data—in fact they’re basically copying Porter and Teisberg. The piece, by Kurt Grote, Edward Levine and Paul Mango, is about hospitals and how they need to get into the 21st century.

And of course the idea is that hospitals need to change their business approach.  Well, given that I hadn’t noticed a rash of hospital closings and the the industry as a whole has been growing its revenues pretty successfully over the years, what exactly are the problems?

The rise of employer-sponsored insurance in the 1930s and 1940s, and the emergence of government-sponsored insurance in the 1960s all insulated hospitals from the need to compete for patients. Today hospitals are “price takers” for nearly 50 percent of their revenues, which is subject to the political whims of the federal and state governments. Hospitals are also required to see, evaluate, and treat virtually any patient who shows up, solvent or not. Furthermore, physicians were productive because hospitals put a great deal of capital at their disposal. Yet these hospitals didn’t enforce standardized and efficient approaches to the delivery of care. At many hospitals today, doctors still bear only limited economic
responsibility for the care decisions they make. Little wonder that it is often they who introduce expensive—and sometimes excessive—nonreimbursable technologies or that hospitals not only suffer from declining margins but are also performing less well than other players in the health care value chain 

The piece then has a pretty incomprehensible chart that compares the EBITDA (profit) of hospitals compared to drug companies and insurers. Surprisingly enough they make a whole lot less EBITDA than those businesses–although long time THCB readers will know we’ve been well down that path. And apparently their margins got worse and then better (from 25% in 1990 to 15% in 1995 to 10% in 2000 but back up to 15% in 2004).

McKinsey’s answer, basically filched from Porter/Teisberg, is for hospitals to specialize in particular service lines, stop being generalists and start trying to please the consumer who’ll be choosing among them. As a general mantra, this might be good for consultants to stick up on Powerpoint, but to be nice it’s massively oversimplified, and to be nasty it’s just plain wrong for most hospitals for the current and foreseeable medium-term future.

Their analysis ignores the fact that there are (at least) three broad categories of hospitals–inner city and rural  safety-net providers, big academic medical centers, and suburban community hospitals. Each of these has a completely different audience, completely different set of incentives, and more to McKinsey’s point, different profit margins.

Right up front they talk about the 50% of revenue that comes from the government–but for the first two categories, it’s more than that! And for everyone, as public programs grow, it’s going to be increasing.

Those hospitals relying on Medicare make most of their money but playing very careful attention to the DRG mix. The ones who play that game well and make most profit on Medicare outliers (like the for-profits McKinsey features in its metrics) don’t really want to change that by stopping their patients becoming those outliers, because if they get better at treating patients, they make less money. Brent James’ famous Intermountain story tells the truth, and until Medicare really changes the way it pays, you don’t want to be ahead of that curve. Intermountain may have spent more than 10 years leaving money on the table, but those rich Mormons can afford it.

Meanwhile, for the mainstream community hospitals, as more and more services and patients leave the building, the imperative is not to change their business model, it’s to get their hands on that revenue that’s leaving with them. That’s why most big hospitals are now-co-investing with physicians in specialty hospitals et al. But while that’s a defensive battle to build better “hotels” for the star surgeons, it’s still about building better “hotels”–not junking the model of being the nicest possible host to the big time admitting surgeons.

The McKinsey/Porter/Teisberg theory is of course that if you get good at one service line, you’ll be attractive to consumers, and that they’ll choose you. There is more truth to this notion now than there was five years ago, but not much more. Doctors choose hospitals for their patients. That’s always been the case, other for those that get admitted via the ED, and that’s a function of location. That’s why hospitals suck up to surgeons. But even when consumers make choices, they’re not very active consumers beyond the deductible, and basically all hospital spending is beyond the deductible, and even in the cash non-hospital business (the stuff like genetic testing) most consumers take their doctor’s advice.

Which leads of course to who the other real consumer for the hospital is, and that’s the third party payer. First rule of dealing with payers is to figure out how to play the Medicare system well enough that you make it very profitable, but not too “well” that you get busted, a la Columbia/HCA, Tenet & St Barnabas.

Second rule is that you need to get bargaining strength against the health plans. No one can pretend that health plans really care in a global sense about having their providers cut costs and improve care delivery. They may say they care about it, but health plans add a chunk on the top of what they pay providers and stick that to their clients (usually employers) — who basically take it in a mealy mouthed way.

There is, though, a fight in any local market about where to draw the line on hospital pricing. But this fight is not about having providers from outside (or even within) the region swooping in to capture all a payer’s business with better pricing on certain service lines, and payers moving patients to these disease-specific treatment centers.  Well, it is about that in the McKinsey/Porter/Teisberg fantasy land, but in reality the fight is about setting global pricing for all the services a payer needs for its members in that region.

Look at the big fights going on now. In Denver there’s a dust-up between United HealthGroup and HealthOne and a similar one between United (again) and HCA in Florida. HealthOne is using a rather amusing tactic that–it says United should increase what it’s paying because it gave HealthOne a good report card. But let’s be real, this is about who can create enough market power so that the other side has to hand over a bigger slice of the pie if it wants services or patients delivered. Sutter showed this well when it beat up Blue Cross in California, and that lesson has been understood by provider systems across the nation as they lined up to form oligopolies.

If hospitals decide that they are going to improve care processes, and stop offering certain services, but offer the ones they are good at at a lower rate, insurers will say two things. First, thanks for the lower price, we’ll happily pay you less, and two, can you please organize coverage for the service lines you’re dropping as our patients in that metro area need it and don’t yet want to fly to Mumbai–they don’t even want to drive across town:

Aventura resident Jean Glick, who received a letter on Aug. 4, said she was furious. ‘If they claim to be a community hospital, this not serving your community,” she said. For Aventura residents insured by UnitedHealthcare, the next closest hospitals that accept their insurance are Parkway Regional in North Miami Beach and Mount Sinai in Miami Beach. <snip> Glick said she fears that not having a nearby hospital that accepts her health insurance could be expensive and even life threatening. ”I can’t afford to pay out of network,” she said.

The interviewed resident may not exactly understand the dynamics, but she doesn’t exactly sound ready for the brave new world. And let’s not underestimate the extent of the change McKinsey’s calling for. Here’s what they say about physicians:

For many physicians—particularly clinical specialists in the service lines where hospitals hope to differentiate themselves—the traditional arm’s-length and more recent competitive relationship must give way to some sort of formal employment or to gain-sharing schemes such as joint ownership of equipment or even whole facilities. Furthermore, performance criteria for physicians must shift. In a world in which transparent quality, service, and prices help patients choose places to seek treatment, metrics such as admissions volumes will become less relevant.

That looks like a license to drop a whole bunch of money hiring doctors and dealing with all the headaches that brings–not to mention dealing with the Stark laws. And all that just after the huge successes of hiring physicians in the 1990s! It would indeed be a brave CEO who stopped caring about the admission rates of his star surgeon. I can imagine the board meeting where he says that his hospital will have a smaller but more efficient service line that one day will grow to replace the others they’re dropping, and the gruff board member asks where the money to cross-subsidize the money-losing ED will come from.

It may be the case that in some far distant future patients can really be served (and moved around) on a national or international scale, and that the local monopoly/oligopoly model gets broken. But these things change very slowly. Delta airlines tried it about a decade back (flying employees around to centers of excellence)–have you noticed the huge impact on the system? Me neither.

Furthermore, almost none of the safety net hospitals, and few AMCs, can realistically take this course, as it destroys their mission of being all things to all comers. That matters not just because of their mission but because most of their money follows their mission. (For the safety-net via local taxes/Medicaid, and for the AMCs via Federal money for training residents and research).

I’m not saying that this is a good thing one way or the other. I’m in fact all in favor of changing incentives so that more efficient and better patient care is delivered, but I am saying that with the current and near-future market realities jumping on the McKinsey bandwagon is not a great idea for the vast majority of hospitals. But don’t worry—have McKinsey come in and change your strategy, and then in a few years they can come change it back!

CODA: It’s only fair to say that  a while back (in 2001)  one of the McKinsey authors Paul Mango wrote a prefectly sensible article about how hospitals could become more profitable by doing what they do now more efficiently, and understanding capacity optimization. And that five years later is pretty much still true.

By JEFF GOLDSMITH

The concept of vertical integration has recently resurfaced in healthcare both as a solution to maturing demand for healthcare organizations’ traditional products and as a vehicle for ambitious outsiders to “disrupt” care delivery.    Vertical integration is a strategy which emerged in US in the 19th Century industrial economy.  It relied upon achieving economies of scale and co-ordination through managing the industrial value chain.    We are now in a post-industrial age, where economies of scale are in scarce supply.  Health enterprises that are pursuing vertical integration need to change course. If you look and feel like Sears or General Motors, you may well end up like them.  This essay outlines reasons for believing that vertical integration is a strategic dead end and what actions healthcare leaders need to take.

Where Did Vertical Integration Come From?

The strategy of vertical integration was a creature of the US industrial Revolution. The concept was elucidated by the late Alfred DuPont Chandler, Jr. of the Harvard Business School. Chandler found a common pattern of growth and adaptation of 70 large US industrial firms. He looked in detail at four firms that came to dominate markedly different sectors of the US economy:  DuPont, General Motors, Sears Roebuck and Standard Oil of New Jersey. They all followed a common pattern: after growing horizontally through merging with like firms, they vertically integrated by acquiring firms that supplied them raw materials or intermediate products or who distributed the finished products to final customers. Vertical integration enabled firms to own and co-ordinate the entire value chain, squeezing out middlemens’ profits.

The most famous example of vertical integration was the famed 1200 acre River Rouge complex at Ford in Detroit, where literally iron ore to make steel, copper to make wiring and sand to make windshields went in one end of the plant and finished automobiles rolled out the other end. Only the tires, made in nearby Akron Ohio, were manufactured elsewhere. Ford owned 700 thousand acres of forest, iron and limestone mines in the Mesabi range, and built a fleet of ore boats to bring the ore and other raw materials down to Detroit to be made into cars. 

Subsequent stages of industrial evolution required two cycles of re-organization to achieve greater cost discipline and control, as well as diversification into related products and geographical markets. Industrial firms that did not follow this pattern either failed or were acquired. But Chandler also showed that the benefits of each stage of evolution were fleeting; specifically, the benefits conferred by controlling the entire value chain did not last unless companies took other actions. Those interested in this process should read Chandler’s pathbreaking book: Strategy and Structure: Chapters in the History of the US Industrial Enterprise (1962).   

By the late 1960’s, the sun was setting on the firms Chandler wrote about. Chandler’s writing coincided with an historic transition in the US economy from a manufacturing dominated industrial economy to a post-industrial economy dominated by technology and services. Supply chains re-oriented around relocating and coordinating the value-added process where it could be most efficient and profitable.  Owning the entire value chain no longer made economic sense. River Rouge was designated a SuperFund site and part of it has been repurposed as a factory for Ford’s new electric F-150 Lightning truck. 

Why Vertical Integration Arose in Healthcare

I met Alfred Chandler in 1976 when I was being recruited to the Harvard Business School faculty. As a result of this meeting and reading Chandler’s writing, I wrote about the relevance to healthcare of Chandler’s framework in the Harvard Business Review in 1980 and then in a 1981 book Can Hospitals Survive: The New Competitive Healthcare Market, which was, to my knowledge, the first serious discussion of vertical integration in health services.

Can Hospitals Survive correctly predicted a significant decline in inpatient hospital use (inpatient days fell 20% in the next decade!). It also argued that Chandler’s pattern of market evolution would prevail in hospital care as the market for its core product matured. However, some of the strategic advice in this book did not age well, because it focused on defending the hospital’s inpatient franchise rather than evolving toward a more agile and less costly business model. Ambulatory services, which are today almost half of hospital revenues, were viewed as precursors to hospitalization rather than the emerging care template.

Policymakers Fell in Love with Vertical Integration:  Cost Containment by HMOs

At the time of my writing, vertical integration was a hot topic in health policy.  Federal policymakers’ attention was fixated on Kaiser Permanente, the largest vertically integrated actor in healthcare (then and now). Dr Paul Ellwood, a health reform advocate, persuaded the Nixon Administration to sponsor the HMO Act of 1973, designed to foster health plans modelled on Kaiser as a “pro-competitive” alternative to a government run national health insurance plan. 

Nixon’s 1973 HMO Act provided federal grants to foster HMOs as a vehicle for containing soaring health spending through market mechanisms. Many multi-hospital systems-Intermountain in Utah, Henry Ford in Detroit, Sentara in Virginia,  Geisinger in Pennsylvania, Humana, Lutheran Hospital Society of Southern California, Michael Reese and Rush Presbyterian Hospitals in Chicago-created their own HMOs during the 1970’s and early 80’s. As a result of these federal investments, HMOs covered 31% of the privately insured population by 1990.  

However, Kaiser-style health plans did not prosper in communities with strong traditions of independent (e.g. solo and partnership) medical practice. HMOs contracting with private physicians individually or through physician sponsored Independent Practice Associations (IPAs) dominated the space. IPAs enabled physicians to participate in HMOs without being employed by them or by hospitals, and to earn extra income through shared profits. 

The abortive Clinton health reforms during 1993-1995 provided a further push toward vertical integration. The almost inexplicably complex Clinton plan would have required the entire care system to be re-organized into competing Kaiser-like regional health enterprises that would receive a global payment for caring for all citizens in its region. The Clinton reforms foundered over concerns about restricting consumer choice of physicians and hospitals (and because no-one could understand exactly what they were trying to do). Nonetheless, hospitals launched a frenzy of physician practice acquisition and regional mergers to prepare for a ClintonCare which never came. 

Shortly thereafter, HMOs suffered an angry consumer and employer backlash (fanned by organized medicine and hospitals). Commercial insurers including Blue Cross plans, United Healthcare, Aetna, Humana and CIGNA displaced HMOs in the commercial market using broad network Preferred Provider Organizations (PPOs) that contracted with hospitals and doctors through, mainly, discounted fee-for-service payment. Today, HMOs represent only about 12% of private insurance enrollment, of which Kaiser’s members represent well more than half.  

The Obama Administration’s 2010 health reforms attempted to revive enthusiasm for vertically integrated healthcare by fostering “value based care”, a fluffy term intended to describe a raft new payment models that shifted risk onto provider organizations-hospitals, physician groups and others. The policy intent was that “value-based care” would serve as  a bridge to full risk/delegated risk capitation. Thirteen years on, “value-based” care remains largely unproven as a cost containment strategy, and the evolution to full-risk capitation has not occurred. 

Why Vertical Integration Hasn’t Worked in Healthcare:  What the Literature Shows

We now have had five full decades of broad experimentation with vertical integration strategies in healthcare. With the benefit of hindsight, Chandler’s pattern has not worked well in this field. There has been a lot of “consolidation” but no measurable efficiency gains. Costs have soared. Something about healthcare has fiercely resisted “industrialization”.

Healthcare mergers-horizontal or vertical- have not only not reduced cost, but may actually have added cost through high transaction costs and new and expensive layers of supervision. Vertical integration of physician practice into hospitals has increased costs, not reduced them. And  vertically “integrated delivery systems” that combined hospital, physicians and health plans in a single organization are neither cheaper nor of demonstrably higher quality than less integrated competitors in the same markets. As health systems diversified into non-hospital businesses, their returns on capital declined. The greater the investment, the greater the decline.  (For a comprehensive review of this literature, see my 2015 piece in integrated delivery networks).

Kaiser and Geisinger

The vertical exemplar, Kaiser, has grown to $95 billion in revenues in 2022.  However, it has remained largely a creature of the markets in which it originated (e.g the Pacific Coast) where over 80% of its members live.  It has taken nearly eighty years to grow to 12.7 million members (and about 2% of total US health spending), despite the bursts of federal enthusiasm. Kaiser suffered several years of major financial losses by attempting to become a “national brand” in the late 1990’s. Kaiser’s success was likely attributable to the market conditions in their original markets rather than its vertical strategy.

An ominous development for the vertical strategy was the recent failure of Geisinger, a 110 year old exceptionally high quality multi-specialty physician group-based health system with a significant health plan and ten hospitals in central Pennsylvania. Geisinger lost $842 million in 2022, and was losing $20 million a month on operations when it announced a complex, non-merger style affiliation with Kaiser through a new enterprise unpromisingly named Risant. At almost $7 billion revenues, it is difficult to argue that Geisinger had insufficient scale to prosper. Rather, Geisinger’s demise as a freestanding enterprise raises serious questions about the viability of the vertically integrated model.

The Heart of the Matter: The Structure of the Value Chain in Healthcare

The main problem with the vertical integration strategy in healthcare: professional judgment and the personalized care guided by it does not scale very well. People, not raw materials, energy or capital, are the vast majority of health costs. Healthcare’s value chain is fundamentally different and more complex than that in manufacturing or retailing. There is also greater variability and uncertainty at the point of service, as well as greater personal risk to the “consumer” than just about anywhere else in the economy.  Chandler’s pattern has also not held for the other professional services that dominate the American economy: education, law, accounting, consulting, etc.

Action is Needed

Vertical integration is a relic of the industrial age. It neither guarantees market dominance nor profitability in healthcare. Actors in the health system should adjust their strategies accordingly.

Keep What You Do Well or Which Would Be Missed If you Did Not Do It.  Lose the Rest.

Health care enterprises’ earnings and financial positions have been damaged by the pandemic, and restoring a positive return on the organization’s assets and people is essential. Health systems that have been adjusting to this new environment with layoffs rather than examining their portfolio of businesses. It is time to ask Peter Drucker’s famous question:  if we were starting fresh today, would we own all the assets and programs we have now? Do we do a good job of running them (e.g. generate both happy customers and black ink), and would anyone miss them if someone else did?  

Don’t just guess what you do best. Rely on empirical sources if available, whether federal HCAHPS patient survey results or Medicare STAR ratings, Leapfrog ratings, independently gathered Net Promoter Scores or internal surveys of clinicians and managers working in each service area, as well as a searching and fearless analysis of where positive cash flow is being generated.

Community needs are an important consideration. If your community would suffer if you stopped doing something, you can count the losses you incur by continuing to do it as part of your community benefit.   An important exception might be for teaching institutions, for whom the breadth of clinical experience required to train new physicians might dictate a breadth of service that does not make sense otherwise.  Those losses are covered in part by Medicare’s direct and indirect medical education supplemental payments.

Services that do not sustainably return your capital or generate a positive work experience for clinicians should be flagged for divestiture, unless you need to continue doing them for teaching purposes or are meeting a significant and demonstrable unmet community need. It makes no sense to own the tenth home care agency or the sixth chain of convenience clinics just to “feed” your clinicians referrals or to field a complete “continuum of care”.

Health Plans in Hospital Systems:  A Bridge to Nowhere?

The future of population-level risk in healthcare delivery enterprises is cloudy. It is true that some health systems saw windfall profits in their captive health plans from declining healthcare use during COVID provide a significant offset to their care delivery losses. But this was a once-in-a-century health emergency, not a “use case” for continuing to invest scarce capital (in a capital intensive business) in a business most care enterprises have struggled with.

Being a “payvider” is not vertical integration, nor is it an efficient vehicle for growing healthcare volumes. Health insurance and healthcare delivery are very different businesses, with dramatically different critical success factors. For care delivery entities, health insurance is unrelated and risky diversification with a high probability of negative investment returns. Unlike inside Kaiser, where the sole access point is enrollment in their health plan, there is “dysergy”, not synergy, between care delivery and health insurance. Success in the health plan business requires reducing both unit cost and utilization in care systems, as well as angering physicians, as Humana realized on its way to divesting its hospitals in the early 1990s.    

Overall, health plan revenues in a few health systems (UPMC, Sentara, Spectrum/CoreWell, Geisinger, InterMountain, Aultman, Providence/Oregon) are such a significant piece of overall revenues and so significant in key local markets that the plans are integral to the future of the enterprise. How many of these systems prop up their health plans’ profitability with “below market” payment rates and pay their physician groups on an RVU basis that incents them to do “more” not “less”  are interesting research questions.  

For organizations with a smaller footprint in health insurance or sputtering “risk models”, it is time for an agonizing re-appraisal of these investments. Those with successful managed care infrastructure may discover that accepting delegated risk capitation, (If, and a large if indeed, it is available in their market) is a better strategy than “owning the whole premium dollar”.

Stop Relying on Market Anomalies to Justify Physician Employment

Physicians are complex professionals, not pawns on a three-dimensional chess board. Aggrandizing the market for physician care is not a cost-effective means of leveraging other healthcare businesses, be it hospitals, health insurance or pharmacies. Subsidizing physician care as a “loss leader” is not vertical integration;  vertical integration was about capturing margins and leveraging economies of scale, not frantically grabbing market share. 

The rush to dominate the physician marketplace has created substandard working conditions for busy professionals and conveyed the impression that physicians’ services are a means to an end, not a valuable end in itself. It also fosters the toxic illusion that those physicians’ patients belong somehow to the “owner”, not the clinicians who are responsible for them. The push by major retailers like Amazon, CVS and WalMart into the physician business is likely to end in tears, both for the companies and the professionals they employ.   

Hospitals will likely lose the Medicare subsidies for employed physicians as federal budgetary conditions worsen.  It is also likely the FTC will also outlaw non-compete clauses in physicians’ contracts (though non-profit hospitals and systems may be exempt). Relying on coercive measures like non-competes clauses that compel physicians to leave your community if they resign (and laying claim to their patients as if they were your property) is a sad confession of a bankrupt corporate culture. Outlawing non-competes as FTC intends will probably damage the big retail “disrupters”, the contract physician providers like Envision and Team Health and the vast enterprise that is Optum Health more than it will damage hospitals and systems.       

Conclusion

Healthcare providers of all stripes must leave the industrial world behind. The value chains in health services are not physical, but rather comprised of human relationships, sustained by trust. Virtual care, the advent of AI in healthcare and consumer demand will require a flexible, 24/7 and care anywhere business model. Those who build the best modern clinical mousetrap will end up with a committed clinical staff and loyal patients. Healthcare isn’t about the building, or the brand, or scale. Surviving and thriving in the future will require engaged clinicians who foster trust on the part of their patients and the community.

Jeff Goldsmith is President of Health Futures, Inc. and a long time THCB Contributor. Jeff wants to thank the following individuals for comments on this writing: Tom Priselac, Andy Mueller, Stephen Jones, Steve Motew, Troy Wells, Kerry Shannon, Trevor Goldsmith, Nate Kaufman and Rebecca Harrington.

I am beginning to wonder, is COVID over? Of course no one has told the virus that it’s over. In fact infection rates are two to three times where they were in the post-omicron lull and new variants are churning themselves out faster and faster. We still have 300 people dying every day. But since we went past a million US deaths, no one seems to care any more.

For the health care system, COVID being over means a chance to get back to normal, and normal ain’t good. Normal means trying to get rid of that pesky telemedicine and anything else that came around since March 2020.The incumbents want to remove the public health emergency that allowed telemedicine to be paid for by Medicare, re-enforce the Ryan Haight act which mandates in-person visits for prescribing controlled Rx like Adderall for ADHD, and make sure that tortuous state license requirements for online physicians are not going away. This also means restrictions on hospital at home, and basically delays any other innovative way to change care delivery. Well, it was all so perfect in February 2020!

But there is one COVID related problem that doesn’t seem to be going away. People. They’re just not going back to work and nurses in particular are resisting the pull of the big hospitals. I don’t know the end game here, but there is a clue in the “return to office” data. Basically every large city is below 50% of its office space being occupied and companies are having to figure out a hybrid model going forward, no matter how much Elon Musk objects.

Hospitals aren’t going willingly into the night. The big systems still control American health care, and are prepared to fight on all fronts to keep it that way. But like office workers, nurses and doctors want a different life. The concept of virtual-first, community-based, primary care-led health care has been around for a long while and been studiously ignored by the majority of the system.

If hospitals can’t get the staff and keep losing money employing the ones they have, there will be new solutions being offered to clinicians wanting a different life-style. We just might see a different approach to health care delivery rising phoenix-like from the Covid ashes.

In this edition’s tidbits, the nation is once again dealing with an epidemic of shootings. Now a hospital joins schools, grocery stores and places of worship on the the recent list. I was struck by how much of the health care story was wrapped up in the tragic shooting where a patient took the life of Dr. Preston Phillips, Dr. Stephanie Husen, receptionist Amanda Glenn, 40; and patient William Love at Saint Francis Health System in Tulsa.

First and most obvious, gun control. The shooter bought an AR-15 less than 3 hours before he committed the murders then killed himself. Like the two teens in Buffalo and Uvalde, if there was a delay or real background checks, then these shootings would likely have not happened.

But there’s more. Hospital safety has not improved in a decade or so. Michael Millenson, THCB Gang regular, has made that plain. And that includes harm from surgery. We know that back surgery often doesn’t work and we know that Dr Phillips operated on the shooter just three weeks before and had seen him for a follow up the day before. Yes, there is safety from physical harm and intruders–even though the police got there within 5 minutes of shots being heard, they were too late. But there is also the issue of harm caused by medical interventions. Since “To Err is Human” the issue has faded from public view.

Then there is pain management. Since the opiate crisis, it’s become harder for patients to get access to pain meds. Was the shooter seeking opiates? Was he denied them? We will never know the details of the shooter’s case, but we know that we have a nationwide problem in excessive back surgery, and that is matched by an ongoing problem in untreated pain.

And then there are the two dead doctors. Dr. Husen, was a sports and internal medicine specialist. Obviously there are more female physicians than there used to be even if sexism is still rampant in medicine. But Dr. Phillips was an outlier. He was black and a Harvard grad. Stat reported last year that fewer than 2% of orthopedists are Black, just 2.2% are Hispanic, and 0.4% are Native American. The field remains 85% white and overwhelmingly male. So the chances of the patient & shooter, who was black and may have sought out a doctor who looked like him, having a black surgeon were very low in the first place. Now for other patients they are even lower.

The shooting thus brings up so many issues. Gun control; workplace safety; unnecessary surgery; pain management; mental health; and race in medicine. We have so much to work on, and this one tragedy reveals all those issues and more.

For today’s health care tidbits, the elephant in the room has truely come home to roost, and now it’s landed on the phone wire, it’s close to breaking it. OK, I have stretched that metaphor to death but you’ll get my point. Writing on THCB earlier this month Jeff Goldsmith and Eric Larsen picked up on something I’ve been saying for a while –the fall in valuation of publicly traded digital health companies will have a knock effect on private companies. 

It took a while–those public companies stock prices started falling from their heights 14 months ago–but in the last month the venture capital scene has gone quiet. The days of sub $20m ARR companies getting mutli-hundred million dollar valuations are over for now. They will be back at some point in the future, as that’s how Silicon Valley has always worked, but it’ll be a while and in the meantime everyone is going to have to figure out what to do in the new world.

The “What to do?” question is getting harder as the data starts to come in, and it’s getting ugly. On the one hand the two fastest growing digital health companies ever have both had their comeuppance. Livongo was a tremendous exit for its investors and ended up trading at 20 times future revenue before it got acquired by Teladoc for $18bn mostly in stock. This quarter Teladoc wrote off much of its investment in Livongo and the whole company is now only worth $5bn. Clearly those “synergies” between telehealth and chronic care management didn’t work. The other rocket ship was Cerebral, which went from nothing in Jan 2020 to by Jan 2022 having over 100,000 patients and thousands of providers on its system as it raised over $300m from Softbank et al. Its aggressive & expensive customer acquisition costs, with its controversial controlled medication prescribing patterns, brought it way too much controversy. Its young CEO is gone, and it’ll be a slow climb back with bankruptcy and collapse the likeliest of outcomes.

But the part of digital health that’s trying to replace the incumbents is not the only place showing ugliness. The technologies and services being rolled out are often not working. Exhibit A is a randomized controlled trial conducted a Univ of Pennsylvania. One set of heart patients was set up with connected blood pressure cuffs, a pillbox that tracked their Rx adherence and lots of coaching help. The others were sent home with the proverbial leaflet and told to call if they had problems. You’d assume many more deaths and hospital readmissions in the second group. You’d be wrong. There were no differences.

So digital health needs to see if it can produce services companies that move the needle on costs and outcomes. The advantage is that they are eventually competing with hospital systems whose DNA doesn’t allow them the ability to let them cross the chasm to the new world. The bad news is that those systems have huge reserves which they can use to subsidize their old world activities.

I’m hoping digital health’s impact in the next 2 years will be as big as it was in the past 2, It’s by no means dead or over, but I am pessimistic.

For today’s health care tidbits, there’s an old chestnut that I can’t seem to stay away from. I was triggered by three articles this week. Merril Goozner on GoozNews looked at the hospital building boom. Meanwhile perennial favorite Sutter Health and its price-making ability came up in a report showing that 11 of the 19 most expensive hospital markets were in N. Cal where it’s dominant. Finally the Gist newsletter pointed out that almost all the actual profits of the big health systems came from their investing activities rather than their operations.

None of this is any great surprise. Over the past three decades, the big hospital systems have become more concentrated in their markets. They’ve acquired smaller community hospitals and, more importantly, feeder systems of primary care doctors. Meanwhile they’ve cut deals with and acquired specialty practices. For more than two decades now, owned-physicians have been the loss leader and hospitals have made money on their high cost inpatient services, and increasingly on what used to be inpatient services which are now delivered in outpatient settings at essentially inpatient rates. Prices, though, have not fallen – as the HCCI report shows.

The overall cost of care, now more and more delivered in these increasingly oligopolistic health systems, continues to increase. Consequently so do overall insurance premiums, costs for self insured employers and employees, and out of pocket costs. And as a by-product, the reserves of those health systems, invested like and by hedge funds, are increasing–enabling them to buy more feeder systems.

Wendell Potter, former Cigna PR guy and now overall heath insurer critic, wrote a piece this week on how much bigger and more concentrated the health plans have become in the last decade. But the bigger story is the growth of hospital systems, and their cost and clout. Dave Chase likes to say that America has gone to war for less than what hospitals have done to the American economy. That may be a tad hyperbolic, but no one would rationally design a health care environment where non-profit hospitals are getting bigger and richer, and don’t seem to be able to restrain any aspect of their growth.

Hospital consolidation has risen to the top of the health policy stack. David Dranove and Lawton Burns argued in their recent Big Med:  Megaproviders and the High Cost of Health Care in America (Univ of Chicago Press, 2021) that hospital consolidation has produced neither cost savings from “economies of scale” nor measurable quality improvements expected from better care co-ordination. As a consequence, the Biden administration has targeted the health care industry for enhanced and more vigilant anti-trust enforcement.

However, as we discussed in a 2021 posting in Health Affairs, these large, complex health enterprises played a vital role in the societal response to the once-in-a-century COVID crisis. Multi-hospital health systems were one of the only pieces of societal infrastructure that actually exceeded expectations in the COVID crisis. These systems demonstrated that they are capable of producing, rapidly and on demand, demonstrable social benefit.

Exemplary health system performance during COVID begs an important question: how do we maximize the social benefits of these complex enterprises once the stubborn foe of COVID has been vanquished? How do we think conceptually about how systems produce those benefits and how should they fully achieve their potential for the society as a whole?

Origins of Hospital Consolidation

In 1980, the US hospital industry (excluding federal, psych and rehab facilities) was a $77 billion business comprised of roughly 5,900 community hospitals. It was already significantly consolidated at that time; roughly a third of hospitals were owned or managed by health systems, perhaps a half of those by investor-owned chains. Forty years later, there were 700 fewer facilities generating about $1.2 trillion in revenues (roughly a fourfold growth in real dollar revenues since 1980), and more than 70% of hospitals were part of systems. 

It is important to acknowledge here that hundreds more hospitals, many in rural health shortage areas or in inner cities, would have closed had they not been rescued by larger systems. Given that a large fraction of the hospitals that remain independent are tiny critical access facilities that are marginal candidates for mergers with larger enterprises, the bulk of hospital consolidation is likely behind us. Future consolidation is likely not to be of individual hospitals, but of smaller systems that are not certain they can remain independent. 

Today’s multi-billion dollar health systems like Intermountain Healthcare, Geisinger, Penn Medicine and Sentara are far more than merely roll-ups of formerly independent hospitals. They also employ directly or indirectly more than 40% of the nation’s practicing physicians, according to the AMA Physician Practice Benchmark Survey. They have also deployed 179 provider-sponsored health plans enrolling more than 13 million people (Milliman Torch Insight, personal communication 23 Sept, 2021). They operate extensive ambulatory facilities ranging from emergency and urgent care to surgical facilities to rehabilitation and physical therapy, in addition to psychiatric and long-term care facilities and programs.

Health Systems Didn’t Just “Happen”; Federal Health Policy Actively Catalyzed their Formation

Though many in the health policy world attribute hospital consolidation and integration to empire-building and positioning relative to health insurers, federal health policy played a catalytic role in fostering hospital consolidation and integration of physician practices and health insurance. In the fifty years since the HMO Act of 1973, hospitals and other providers have been actively encouraged by federal health policy to assume economic responsibility for the total cost of care, something they cannot do as isolated single hospitals.

• Managed Competition. Under the Paul Ellwood/Alain Enthoven/Jackson Hole Group vision of managed competition, a fragmented care system comprised of individual hospitals and autonomous physicians would be replaced by a limited number of Kaiser-like capitated integrated delivery systems serving regions and competing on price (e.g. premium/PMPM).  This vision of a consolidated health system assuming population risk has been the holy grail of US health policy for five full decades, embraced by Republican and Democratic policy advocates alike. For hospitals to remain independent was to risk being isolated and commoditized by larger enterprises, either insurer- or provider-sponsored. This fear of isolation resulted in waves of hospital consolidation during the late 1970s and 1980s in anticipation of a health care marketplace populated by regional integrated delivery networks.   

• Clinton Health Reforms. Under the proposed Clinton reforms in the early 1990’s, hospitals would only have access to revenues through capitated health payment from the anticipated regional purchasing alliances and could contract to be paid directly if they were capable of bearing and managing population risk. Otherwise, hospitals would have become isolated subcontractors whose offerings would have been commoditized by those who accepted population-based payment. Even though the Clinton reforms faltered, a large wave of hospital mergers and integration activity in the mid-1990’s anticipated their passage. 

• HITech and the ACA. In the wake of President Obama’s 2009 Hitch Act, White House technocrats actively encouraged hospitals to absorb their physicians’ practices as a vehicle for facilitating the adoption of electronic health records. Similarly, the ACA’s payment reform initiatives, particularly the centerpiece Shared Savings (ACO) Program, relied upon on the ability of health enterprises to reach and manage the care of large populations as a bridge to a fully capitated future, spurring yet another wave of hospital consolidation.

Integration of Care and Financing has Failed to Achieve Ambitious Social Goals

The fact that health systems have struggled to integrate insurance financing into their care operations has left a legacy of at best partial integration. According to business historians, the core strategic idea at the root of these policy proposals was flawed; health insurance and care delivery are very different businesses, in some ways diametrically opposed to one another.  

Hospital enterprises owning a health insurance business are thus engaged in unrelated diversification, a strategy that has long since lost favor in the business world due to poor returns on the investment. Robert Burns and colleagues found that the greater the investment in this type of diversification, the larger a health system’s losses. As we have argued elsewhere, Kaiser’s success looks increasingly like a one-off example. More than 80% of Kaiser’s enrollment remains in its originating Pacific Coast markets where it originated more than 70 years ago. 

And despite more than a decade long federal push for “value-based” payment and tens of billions invested by health systems in consulting and infrastructure, by 2020, capitated payment accounted for a scant 1.7% of median hospital revenues and risk-based payment (e.g. two-sided ACO-style risk) only 1.1%. Neither revenue source has grown measurably since 2014 (Moody’s Investor Service, 9 Sept 21). Almost 50 years after the HMO Act of 1973, in only a few communities in the country (Pittsburgh, San Diego and Portland) do at least two integrated delivery systems compete for health plan enrollment. 

Realistically, the Ellwood/Enthoven vision of a care system reorganized into risk bearing IDNs is not going to happen in the US. Yet the hospital and physician consolidation catalyzed by that vision has left most metropolitan areas with a few dominant health systems with undeniable market power in their commercial transactions with health insurer. This market dominance and observed pricing power has led to an increasing policy hostility towards health system scale, with commercial prices being used as the singular measure of performance.

Meanwhile, other large corporate actors have appeared that seek to integrate care across regions without owning hospitals. The two largest enterprises in the US health system, each exceeding $250 billion in annual revenues, do not own a single hospital. They are UnitedHealth Group and CVS/Aetna, diversified health insurers with impressive arrays of primary and ambulatory health services as well as pharmacy benefits management and operations and in CVS/Aetna’s case, a nationwide chain of retail pharmacies. How one pays or regulates these vast non-hospital enterprises, just two of which accounted for more than 13% of US health spending in 2020, in a way that maximizes societal benefit is a conversation that has not even begun.

How to Think about Measuring Social Benefit from Large Health Systems

It is not clear to us that having a highly fragmented health system with thousands of actors each covering a piece of our health needs and competing aggressively on unit price is in the society’s best interests.  A comprehensive conceptual framework for assessing the social contribution of complex health systems—hospital-centric or not—is needed. Fortunately, Donald Berwick did exactly such a thing in 2008 by proposing what he called the Triple Aim. While Berwick meant it to represent achievable goals for health systems, we think it is also valuable as a societal benefit framework measured across a region.

Berwick later added a fourth Aim, improving the work experience of clinicians, in recognition of the challenges of professional burnout and stress, which have been dramatically heightened by the COVID crisis.

 In applying Berwick’s formulation, it is not whether a system exceeds a certain numeric threshold of market concentration, but how the merged entity affects its communities’ health and welfare after the attorneys and consultants go home that really matters.

More specifically, a health system’s societal contribution should be evaluated based upon:

1. Its ability to reduce per capita care costs in the populations they serve
2. Its ability to reduce errors and increase measured patient satisfaction by improving the care experience.   
3. Its ability to improve population health in their communities, especially by attacking and ameliorating social determinants of health.
4. Its ability to engage clinicians and improve their practice efficiency and satisfaction. 

Let’s discuss each of these and consider the ramifications for social benefit.

1. Per Capita Cost Reduction

Traditional anti-trust enforcement has focused on commercial price behavior as the measure of social impact of a merger. Yet modern systems offer thousands of products, each of which has a unique charge structure spread across multiple payers. Systems also differ markedly in the degree to which they serve government funded patients whose insurers (e.g. Medicare and Medicaid) pay less than the fully loaded cost of care, and thus rely on commercial insurance markups to offset these losses.    

However, the communities they serve generate health costs summed across all the people who live in a given region. Berwick believed that reducing per capita medical expense for the community as a whole was the highest and best use of health systems, whether or not they were paid for all those patients on a capitated basis. Since it is not realistic to expect that we will convert all provider payments to capitation, health systems will have to manage the tension between per incident payment for services and overall population level reductions in health expense. The burden of proof will lie in evaluating the specific mechanisms systems use to reduce per capita expense.

These mechanisms could include the use of targeted comprehensive primary care aimed at older and chronically ill individuals, including the use of “extensivists”—primary care physicians and advanced practice nurses that reach out into the home and workplace to manage health risks proactively, the development of palliative care models for patients with advanced illness, employing digital/telehealth services that target not only chronic illness but also various forms of addiction, particularly to food, alcohol and opiates, telehealth tools that improve adherence to risk-reducing medications like statin drugs, vaccines and the use of predictive analytics, disease registries, and “hot spotting” of vulnerably co-morbid patients, among many other promising innovations.

North Carolina’s Novant Health has used community health workers who assess high utilizer patients for social determinants in their home, shelter, or location of choice. They connect patients to a variety of trusted community partners, addressing food, housing, workforce development and transportation barriers

The result: a 33% reduction in ED utilization, a 40% increase in medication adherence, and a 21% reduction in PHQ-9 score (measuring anxiety and depression).  According to Novant Health CEO Carl Armato, the most consistent piece of feedback from CHW patients is gratitude that someone took time to listen to and address their needs–they consistently report a remarkable patient experience.

Simply focusing on commercial prices as a metric of performance of health systems misses any recognition of the market context these systems operate in such as neighborhood poverty, racial and economic inequity, payer mix and disease burden and thus fails to address the financial viability and sustainability of these enterprises. How many large health systems, particularly Academic Health Centers, would survive in the face of an arbitrary Medicare-related price ceiling for commercial payment?   

We advocate a more nuanced assessment of economic contribution that balances an examination of per capita cost with the overall financial performance of health systems[1]. Since community wide per capita spending is difficult to capture, per capita Medicare spending would be a more easily accessible proxy measure.

2. Improving Safety and the Patient Experience

Health system consolidation should lead to systematic improvements in the patient experience. COVID clearly showed that larger health care organizations with significant IT systems and technical staffs were better able to scale up telehealth operations to compensate for the loss of in-person elective and emergency care and to sustain telehealth use when elective care resumed. The ability to stand up command centers and manage health resources (ICU beds, emergency rooms, clinical staffing and related support services) across a metropolitan area or region cannot be achieved by a large number of competing, freestanding facilities. 

The ability to create condition-specific care plans that envelop and extend complex care episodes (e.g. joint replacement, cardiac nerve ablation, etc) is enhanced by having multi-disciplinary clinical teams supported by data analytics and IT systems. Similarly, the ability to identify defects in clinical and administrative processes that expose patients to risk and to wasted time and cost is enhanced by having a larger base of participating clinicians. 

Pre-COVID, many health systems were building “digital front doors” to their care systems, using smartphone apps, call centers and digital health access to smooth entry into and passage through their care systems. Larger systems created by mergers have not only enhanced clout with regional clinicians but also with health insurers that should be used to bring down patient bills.  

These improvements should be measurable through improved HCAHPS ratings and rising net promoter scores. Similarly, reduced clinical errors and improved clinical productivity are measurable and should be discoverable by patients and community members.

3. Improving Population Health through Addressing Social Determinants

In his “Poverty and the Myths of Health Reform,” the late Dr. Richard (Buz) Cooper persuaded us that the most important intervening variable in the widely observed variation in hospital and specialty use from community to community was not the supply of specialists and hospital beds, but rather the prevalence of poverty—the main social determinant of health.  Homelessness, food insecurity, broken families, unemployment, health illiteracy all stem from poverty, and generate both avoidable illness and costs.

These conditions cannot be ameliorated by health systems, or “competition” between isolated pieces of the care system, because they ultimately originate in our culture and society. The United States has grossly underinvested in the social care needed to ameliorate these conditions. These underlying social conditions that drive a lot of “unnecessary” health care use cannot be ameliorated through the core businesses of health systems, but rather through their collaboration with other entities with community wide reach, as well as neighboring public health systems—the very kind of collaboration we saw across the country during COVID.  

There are many examples of this type of collaboration:

1. California’s public health collaborative to attack and reduce maternal mortality, in which hospitals played a decisive role. This multi-year collaboration succeeded in reducing maternal mortality by more than half to rates comparable to western Europe, with concomitant reductions in PICU stays, infection-driven lengthy hospital stays, etc.

• Blue Zone Collaboratives. These collaboratives focus on specific neighborhoods or districts, and identify gaps in access to food, housing, public safety and social/human services that, when ameliorated, contribute to lengthening life expectancy in the geography chose. Health systems are key actors in most of the 56 projects currently underway.

• Mental Health Collaborations. In many communities, both public and private mental hospitals have closed, and services for those in mental health crisis have been absorbed, with predictable results, by local law enforcement. In metropolitan Seattle, health systems that normally compete for patients—MultiCare and CHI Franciscan Healthcare—collaborated to build a $41 million 120 bed inpatient psychiatric facility
   
• Addressing Homelessness. Numerous health systems (including Kaiser Permanente, Promedica, Truman Health, etc. ) have moved to create living spaces for homeless people in their communities, which has vastly simplified bringing community-based services and job opportunities to them.

Many health systems are engaging community partners in addressing income inequality, unemployment, educational opportunity, food insecurity, homelessness and racism. Some health systems such as Promedica in Ohio and Novant Health in the Carolinas are making upstream investments in housing and social services and to act as “anchor institutions” for community development. Other systems such as Ohio Health and Inova Health focus on their core clinical mission but embrace partnerships with community organizations. 

Novant Health has created a program for “Expanding Opportunity through Education”—investing in education programs with students of color and economically-disadvantaged communities where there are significant disparities in college readiness rates. Individuals who do not graduate high school are more likely to report suffering from at least one chronic health condition—asthma, diabetes, heart disease.  

Under new CEO Dr. Stephen Jones, Virginia’s Inova Health System has a partnership model for community engagement. Inova established twenty care clinics in zip codes of need based on data and community input with over 100,000 visits in 2021. Realizing the effects of what Jones terms “social drivers of health” the Inova Cares Clinics house Community Health Workers embedded in the neighborhoods to build trusting relationships, as well as pantries to address food insecurities. In addition, in partnership with local Title I schools and non-profits, Inova is working to create career journeys for students. Inova also supports 30 community organizations through health equity grants totaling $1M to leverage relationships for real impact in the community.

The normative expectation should be that because larger health systems serve larger populations, and therefore are exposed to larger community risk factors and needs, they can and should be expected to devote resources and talent to addressing them. The existing approach to evaluation of community benefits (as in the IRS definitions and the requirements under the Affordable Care Act) are sorely in need of re-examination to account more fully the range of initiatives being pursued.   

4. Improving Care Giver Experience

One area where large health systems have struggled is in improving the working lives and professional satisfaction of its caregiving workforce. COVID clearly demonstrated how much stress and pressure in health systems devolves onto front line care givers. While large health systems were ultimately able to procure the PPE needed to make their jobs safer, they were less effective in ameliorating the stress at the root of care during this crisis. Being highly dependent on an aging workforce, health systems face huge staffing gaps in the wake of COVID as burned-out baby-boom vintage doctors and nurses retire or transition to other, less stressful work roles.

Health system leaders are acutely aware that their clinical workforce are “spent” after more than two years of delivering front line care in a pandemic, increasingly to unvaccinated  and often hostile or violent patients. It has become a strategic imperative that health systems respond effectively in acknowledging and managing the mental health problems of their clinical workforce. Failing to acknowledge this problem has resulted in avoidable shortages in clinical staffing, and excessive reliance on mandatory overtime and temporary clinical workers or travelling nurses.

Clinician engagement is an important precondition for improving clinical quality and reducing medical errors. Large health systems have fewer excuses for not having worker sensitive (as opposed to litigation sensitive) human resource policies. Workforce satisfaction is easily measured through physician and staff engagement surveys.

Conclusion

We do not propose this performance framework as a regulatory guide for state or federal authorities. Rather it is presented as a voluntary alternative for managements and Boards seeking to demonstrate the community benefits created by their institutions.   

At their best, large health systems can deliver sophisticated, complex care to their communities. But they can also play a key role with community partners in addressing the social determinants of health, thus reducing per capita health cost. Large multi-billion health systems are here to stay. The conversation about how to enhance the health systems’ benefits to their communities, which have been so vital during COVID, has barely begun.   

Jeff Goldsmith is President, Health Futures Inc & Ian Morrison is the former President of Institute for the Future. One of them is America’s best known health futures, but we’re not sure which!

Acknowledgements

This essay has benefitted greatly from review, comments and examples provided by colleagues. In particular, we would like to thank health system CEOs and health policy experts Nancy Agee, Carl Armato, Carmela Coyle, Stephen Jones MD, Chip Kahn, Stephen Markovich MD, Tom Priselac and Michael Gentry.

[1] Nancy Kane, Robert Berenson and colleagues have pointed out that the financial performance of health systems differs materially based on their resource position, payer mix and other variables, and proposed a financial performance evaluation framework  based on audited financial reports to account for these differences .  The same is true of the geographical areas served by systems; those which serve communities like the Bronx or South Central Los Angeles face greater challenges than those serving suburban communities. Adding socio-economic domains based on geography to the Kane/Berenson framework would facilitate “apples to apples” comparisons of potential social benefit created by systems.