Dr. Charles Kilo Believes Competition Drives Up Healthcare Costs

January 18, 2012 -- As policymakers wrestle with transforming Oregon’s healthcare system to control costs and improve quality, competition stands in the way, according to Dr. Charles Kilo, chief medical officer at Oregon Health & Science University.

There’s no evidence to suggest that competition improves quality. Instead, driven by financial rewards and a desire for market share, competition leads to a duplication of resources, and expensive technology-dependent services which in turn leads to higher costs, said Kilo.

“Once competition occurs, you have what Governor Kitzhaber calls ‘trapped equity,’ and getting rid of this trapped equity is hard because you’re stuck with buildings and services that are duplicative,” according to Kilo, who began speaking out about this issue before he joined OHSU, while still CEO of Greenfield Health and as a vice president at the Boston-based Institute for Healthcare Improvement.

“We in healthcare have to figure out how to stop behaving that way. It’s just hurting our community. Duplication drives up costs and insurance rates go up. The more expensive healthcare becomes, the fewer people can afford insurance, and it degrades health across our community.”

Kilo applauded the efforts of Dr. George Brown, CEO of Legacy Health System, is chairing a work group focused on creating a single coordinated care organization (CCO) for Oregon Health Plan members in the tri-county Portland area.

“Talking about a single CCO in the Portland area may open the door for that conversation in other regions of the state,” he said. “With an increasing limited amount of resources, we have to be much smarter about how we organize ourselves and work together to deliver the right services to those people. This is really about very clear role definition, role adherence and the rational, cost-effective distribution of services.”

As healthcare professionals, it’s been incredibly hard to look in the mirror and work with each other in different ways, Kilo said. “Maybe this is the wake up call everyone needs. Until we solve this problem, it’s as if we’re driving a truck straight at a concrete wall with our foot on the throttle – we’re going to crash unless we learn to lead differently.”

Time to Challenge Technology and New Buildings   

Technology and new buildings aren’t the solutions, said Kilo who recognizes that people get uncomfortable and angry when they’re challenged.

“They might not believe that it’s anyone’s right to question their decisions, or our collective decisions,” he said. “Such an adverse environment, such decision-making that occurs in isolation of considerations of community need actually risks harming the community.”

As an example, historically, OHSU has provided the region’s only ventricular assist device (VAD) program for advanced heart failure. An abundance of data shows higher quality is associated with a higher number of services concentrated at one location. Yet, two additional VAD programs are in development at Providence St. Vincent and Kaiser Permanente, which will inevitably increase aggregate costs, Kilo said.

“I understand why that’s happening – cardiac surgeons and cardiologists want to feel like they’re providing the most advanced therapies,” he said. “Health systems want bragging rights and marketing opportunities, and there is, at times, money to be made. But, that doesn’t mean quality will be improved or costs will go down. When you concentrate such expensive, complex services in one program focused on continuous performance improvement, generally you experience better quality over time because of the higher volume.”

Kilo pointed to another example. “Do we need more than one children’s hospital in Portland? Most urban centers larger than Portland have only one children’s hospital, and it’s almost always associated with their academic medical center. I’m not saying this service should be concentrated at OHSU, but we need a much better mechanism to decide on resource distribution and the location of highly specialized services within the Portland metropolitan area.”

Besides the new children’s hospital under construction at Legacy Emanuel, Providence St. Vincent is developing a children’s hospital within itself, Kilo said. It’s had a longstanding neonatal ICU, and a few years ago developed a pediatric inpatient service. Now St. Vincent may open a pediatric ICU to do more complex pediatric surgery.

“This represents unnecessary duplication,” Kilo said. “So we’ll sort of have, say, 2.5 children’s hospitals in a city that should have one. Do we need more medical towers? Do we need another children’s hospital in Portland? No. What we do need is the opportunity to have a conversation about how to adequately distribute resources and healthcare services.”

This shouldn’t be a decision primarily about what’s good for any one hospital, medical group, or health system, but what’s best for the community, he added.

New Focus for Community Hospitals   

“We fundamentally need a discussion about roles in healthcare – role definition is critical to any discussion of the rational distribution of resources,” he said. “We obviously need fantastic community healthcare including medical groups and hospitals. We need a fantastic academic medical center. I think we could sit down together and define their respective roles – roles necessary to produce the highest quality and most cost effective care possible.”  

Kilo challenged community hospitals to focus on serving their own communities rather than taking paying patients from another hospital’s region which inevitably leads to conflict and competition, causing costs to spiral and degrading quality.  

“This is all predicated on getting the profit motive off the table,” he said. “We do a lot of things because there’s money to be made. But that game is changing with the Triple Aim to reduce the total cost of care. We’re not just doing this to secure our financial future. It’s come down to the perceived reality that money is the mission, which has become more important than the health of our communities.”

Kilo, who calls himself a dyed in the woods capitalist, says there’s no evidence to suggest competition has a positive effect on healthcare.

“In fact, competition has had a deleterious effect,” he added. “What we’ve created is competition over dollars as opposed to the rational distribution of dollars which has led to role confusion and the duplication of services.”

Healthcare costs are also related to the health of our community’s employment environment, and the more “we continue to drive costs up, it’s more challenging for an employer. Adverse healthcare environments drive jobs out of the region. A cost-effective healthcare system that’s judicious in its distribution of services and resources creates a better employment environment,” he said.

With this nation spending 17% of its GNP on healthcare, there’s little evidence that healthcare has improved overall. More attention, Kilo said, needs to be focused on the social determinants of health – education, parenting, living wages, the environment and jobs.

“If we spent money on efficient, effective education or on living wages, we’d likely find that we’d gain more health as measured across the community,” he said. “As a society, it behooves us have much more direct, deep, and hard conversations about how we produce health for our community. For example, we’re facing the biggest epidemic we’ve ever seen in obesity and we’ve done very little about it.”