Partner’s Health Care: The Doctor will Hustle you now
According to the U.S Department of Commerce, health care spending in the US amounted to 17.4 percent of GDP in 2013. [1] At this level of spending, an unaware observer might assume that Americans consumed a platter of world class, high value, medical services. Partner’s Health Care, the largest hospital system in New England, is composed chiefly of Mass General Hospital and Brigham and Women’s Hospital, the #1 and #6 US News ranked hospitals in the country respectively. [2] Unfortunately, this clinical care comes at exorbitant prices and has not been shown to be reliably superior to competing healthcare organizations. This is in large part due to the highly inefficient alignment between the company’s business and operating models.
Business Model:
The business model of Partner’s Health Care is chiefly based on delivering a wide array of supposedly ‘world class’ medical and surgical services (nearly every known treatment) to patients in the greater New England region. Partner’s promises to deliver high value care – medical services that lead to great outcomes at a reasonable cost. Due to its affiliation to the Harvard Medical School and extensive research and teaching expertise, Partner’s Health Care is able to charge 1.6x more than other hospital systems in the area.
However, no third party report has ever shown that most patients cared for by Partner’s Health Care routinely have significantly better outcomes than other large hospital systems. [3]
Operating Model:
Care at MGH, BWH, and their associated clinics is extremely centralized. Patients travel to these large complexes for treatments of conditions ranging from urinary tract infections to heart transplants. The hospitals are essentially complex job shops, where different types of physicians treat widely different conditions. In sharp contrast to the classic assembly line, there is typically not scale of any one particular kind of patient, and different types of patients are seen in succession.
Partner’s Health Care has a large advantage in that it employs some of the highest achieving medical residents and attending physicians in the world based on performance in medical school and research accomplishments. It is able to pay these physicians well below the average market rate due to the prestige and opportunities provided by Harvard Medical School.
Business Model/Operating Model Misalignment
The centralized, job shop operating model combined with a business model that promises care for every possible condition results in extremely high fixed infrastructure, labor and administrative costs. In order to treat conditions ranging from the common cold to brain tumors, Partner’s Hospitals must have access to nearly every known piece of medical equipment and physician. However, the absolute number of treatments/procedures performed for many conditions is very low, leading to low labor and asset utilization. Despite individual salaries being low, this low utilization leads to increased costs for all offered treatments and undermines Partner’s value proposition.
Perhaps most worrisome, MGH and BWH offer completely redundant services within a few mile radius and do not work together to optimize utilization and reduce admin costs. Partner’s completely fails to unlock the possible efficiencies of scale by separating the operating management of these two hospitals.
Unfortunately for society, the high fixed infrastructure costs creates a barrier to entry that allows Partner’s Health Care to remain highly competitive despite its nebulous value proposition. As competing health organizations are almost as inefficient, expect limited change from the status quo in the near future. Despite having access to some of the world’s best medical professionals, when judged from a value framework, the care is decidedly average.
Sources:
Thanks for sharing, Rajiv! I had never considered hospital operations through the lens of job shops/assembly lines or considering labor/asset utilization. With such a staggering amount of GDP spend on healthcare I am glad that people like you are out there to make the process more efficient and hopefully more appropriately priced for the rest of us!
Great post! I would have thought that since the cost is 1.6x higher than other hospital systems, the doctors would also be paid above average salaries. Do you think the solution is to have more specialized hospitals so the asset and labor utilization rates are higher?