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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.
January 18, 2012

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.”


Submitted by Anonymous (not verified) on Wed, 01/18/2012 - 15:25 Permalink

Dr. Kilo, I agree with much of your article. If there is an assessment that OHSU is NOT the quality leader (and and cost competitive as well) in any of these duplicate services, could you take the lead for the community and chose to shut down these duplicative clinical areas? Unless someone has the strength of character to take the lead, then the medical arms race will continue. Regards
Submitted by Anonymous (not verified) on Thu, 01/19/2012 - 12:11 Permalink

What a coincidence... Dr. Kilo works for OHSU and he wants all other facilities shut down. Competition always has lowered costs and improved quality! Choice gives people options!
Submitted by Anonymous (not verified) on Thu, 01/19/2012 - 12:16 Permalink

Bravo - I agree with much of what was said. Part of our health care dilema stems from the fact that we suffer from an overabundance of resource and an outdated business design. The challenge is to make effective change. Hopefully with the advent of CCOs we will see a change in accountability (likely through sharing risk) in all parts of the system for all three Triple Aim outcomes - health, experience, and cost.
Submitted by Anonymous (not verified) on Thu, 01/19/2012 - 13:38 Permalink

I do not believe these forecasts at all. We need consumers to have transparency of costs and quality and make choices withgood data. We also need reference pricing and let people pay out of their pocket for any more expensive alternative premium. Then the effective providers will stay and ineffective providers will leave the market and yes, volume will get concentrated at the winners. The public should never trust providers or bureaucrats to decide who the winners/losers are or allocate among themselves. This is socialism not capitalism.
Submitted by Anonymous (not verified) on Thu, 01/19/2012 - 15:23 Permalink

Traditional "academic" and "health care" settings developed with the power vested in silos --- Psychiatry, Dentistry, Surgery, Pharmacy, Nursing, Medicine, Pediatrics, and corresponding specialties within. Much of what Dr. Kilo is attempting to convey, quite simply, is the importance of working collaboratively and horizontally, not vertically in a silo. What we have witnessed in the past with MDs versus NPs, Ophthalmologists versus Optometrists, Orthopedists versus Podiatrists plays out in a larger setting when more than one system within a defined population initiates another duplicative expensive program or service. The VA in many ways has figured this out. They have a few designated spinal cord injury programs, geriatric centers, liver transplant centers, etc within the system nationally. On a smaller scale, we see similar conflicted thinking when attempting to develop and certify position descriptions for patient navigators, community health workers, medical assistants, social workers, pharmacists, etc. Certifying bodies struggle with boundaries --- if it is not specifically in our discipline, we cannot so authorize or certify. The bottom line, we must focus on what works best for the patient, community, quality, and economics at the same time.
Submitted by BJ Cefola on Thu, 01/19/2012 - 19:55 Permalink

I agree strongly with Dr. Kilo's points about managing supply and coordination, such measures are essential to bringing health care spending under control. But I have a challenge. In the insurance system we have, coverage is largely restricted to hospitals which have agreed to reimbursement rates specified by contract. For many insureds, going "out of network" is the financial equivalent of going uninsured. If hospitals did coordinate and reduce redundancy, what would guaranty patient access to all the facilities potentially needed? If OHSU wants to be the only game in town for a given treatment what do you say to patients who need it but whose insurers don't have a contract with OHSU?
Submitted by Anonymous (not verified) on Thu, 01/19/2012 - 21:27 Permalink

Valauable comments. Healthcare costs and quality have not benefited from simply allowing the customer to see prices and make choices. Many of the important issues we deal with are simply too complex for this. While many still want to advocate for that approach, the experiment has been run many times in many ways without success at a macro level. The bottom line is that healthcare simply is not the place for market economics - it really isn't simply about serving customers or consumers because we have to balance that against social and community need, and consumers frequently don't know what they really need. When I say this, I generally do so along with a statement that I am a firm believer in capitalism. The challenge is that healthcare as it is currently constructed is actually economically harmful to the business and employment environment in the US, as well as individuals and families. My comments are made as a citizen, not as a representative of OHSU - this is a talk that I have been giving publically for years before joining OHSU. I am not advocating for OHSU or against other providers or health systems. Rather, I'm advocating for rational decision-making which can only be achieved in healthcare if we do it together. Chuck Kilo
Submitted by Anonymous (not verified) on Fri, 01/20/2012 - 14:09 Permalink

Dr. Kilo made a great observation. I admire his direct and down to the point argument on what he believes. Since he uses terms such as competition and supply/demand in economics, the reasoning then has to be in line with the framework of economics. When we take class in econ, especially at graduate level, we know how complicated it is to model an economic behavior. These days, economists are typically mathematicians, as they will have to resolve fairly complex econometric models. To make the point, I do think Dr. Kilo’s argument on this particular observation might have some flaw. Here I would just want to add one more variable for our consideration. We see more and more independent practices are being bought up by hospital systems. One the one hand we do see better quality care from large group practice as lots of evidence shows. On the other hand, bigger medical group practices need more comprehensive facilities to work around in sake of care coordination/continuous care. That could well explain why such ‘duplicate’ development has been happening in Providence and Kaiser. I am afraid the cost in short term will be added to consumers, the cost in long term will be on tax payers when we see such ‘competition’ takes down one hospital system in the community.
Submitted by Anonymous (not verified) on Fri, 01/20/2012 - 19:58 Permalink

Dr. Kilo is on to something. The notion of "free choice" and consumer sovereignty is nonsense when applied to health care. People do not choose to get sick, and medical treatment is not a discretionary expense like buying a car or selecting a new brand of laundry detergent. If you need it, you need it, and medical science, not consumer preference or shrewd marketing, ought to determine what kind of treatment you get. Health care in this country is twice as costly as other countries because, unlike other countries, we insist on treating it like a commodity instead of a public good. We have a dazzling array of health insurance plans competing for our business, and they add as much as 30% in administrative expenses to the aggregate cost of care. Insurers compete not by lowering prices but by trying to capture that portion of the market which is least likely to cost them money. The same logic drives the hopsital industry: in the most lucrative market areas there's a surfeit of resources; other areas are often dangerously underserved. Costly investments where they are not needed is a powerful incentive to prescribe treatment when it's not needed, to make the investments pay. Peter Shapiro