Thursday, October 20, 2011

Clinical Medicine, Capitalism and Creative Destruction

As the second world war ended, The Great Atlantic and Pacific Tea Company was opening supermarkets all over the country.  In time, local neighborhood grocery stores, bakeries and meat markets disappeared. When WalMart, Kmart and Target saw the opportunity, they began to compete for the family food dollar and eclipsed the A&P.  At the same time, small family farms were absorbed by large produce packaging companies.  They amassed huge tracts of land and adopted industrial scale methods of production.  Frank Perdue became a celebrity.

After that war, the automobile became a global product.  Newly established brands from Europe and Japan entered the American market.  Ford, General Motors and Chrysler survived and lesser marques like Nash, Hudson, Packard and Studebaker went the way of the corner grocer.  Lee Iacocca became a celebrity.

These are examples of the concept characterized as creative destruction.  It was inevitable that this model for change would come to the practice of medicine.  Over the last 20 years, the cottage industry of clinical medicine has been transformed into a collection of corporate behemoths.  In the process, Drs. Gupta, Chopra and Oz have become celebrities.

UnitedHealth Group Incorporated recently acquired the operations of a major physician's organization in California.  The purchase of the management arm of an association of approximately 2,300 physicians in a range of specialties established UnitedHealth's Optum Health Services platform as a formidable presence in the region.  Optum had previously taken over two smaller groups in southern California - AppleCare Medical Group and Memorial HealthCare.  This is the latest example of how lines are blurring between insurance companies and health care providers.

There is no way anyone could confuse the operating principles of such large corporate organizations with the insignia of the single practitioner or small groups of practicing physicians. The days are gone when a physician could move to a community, open an office, hire staff, and build a practice.  It is much too complicated today.  New legislation requires expensive technology, electronic medical records and structured human resources.  In order to deal with all the new rules and regulations, an affiliation with a large management organization is practically mandatory.  All over the country, individual physicians and groups are signing up with area hospitals, medical centers and academic teaching institutions.  As they recruit and buy practices, these large, multimillion dollar institutions with multibillion dollar budgets have made it possible for physicians to affiliate without having to move their office, change their staff or even change their telephone number.

These changes have not escaped the attention of doctors.  When I was in training, it was understood that a physician in practice had to deal with the demands of running a small business.  Although these issues were never mentioned in medical school or during house staff training, I knew there would be some relationship between my overhead costs and take home pay.  As more and more physicians realized that they weren't going to be just practicing medicine but would be part of a health care industry, they decided a Master of Business Administration degree was the appropriate credential.  By the late 1990s, there were a half dozen joint MD/MBA degree programs in the country.  Today, 65 institutions offer the combined degree program - with tuition and fees amounting to more than $250,000.  Not a trivial investment!  And, more significantly, not time spent acquiring or mastering skills sets relevant to caring for the sick!

Perhaps the most striking feature of the corporatizing of medicine is the widespread use of advertising campaigns by doctors and hospitals in newspapers, magazines and on television with the objective of increasing their market share.  It's not possible to estimate the total spent for advertising, however, it is clearly a significant addition to the cost of business.  Prestigious institutions such as New York Presbyterian, Johns Hopkins, Baylor, Cleveland Clinic and Cedars-Sinai have all launched costly promotions to extend their brand beyond the logical perimeter of their customary catchment area.  So Johns Hopkins Hospital is spending money to recruit patients to Baltimore from New York City - competing on New York Presbyterian Medical Center's turf.  It's said only one half of the dollars spent on advertising really works.  Since advertising is such a large part of the nation's health care budget, a great deal of money could be saved if we knew which half that is.

When entering the medical maze today, the odds of finding a solo medical practitioner or one in a small group are about the same as sighting a Packard on the interstate.

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