The Bloodiest Health Care War in the 90's

It did not occur in Washington DC with the Clintons. Sure the backroom meetings, the Harry and Louise ads, and screams of the acopalypse were bloody. However, the bloodiest health care war of the 90's happened in the idyllic scenery of Southern Oregon. The Rogue River roars past mountains that are still snow capped in the summer. Crater Lake is nearby and the city of Ashland puts on the annual Shakespeare Festivals. In an equally Shakespearian tragedy, a physician group, two hospitals, and some health plans engaged in a managed care battle in the 1990's that showed what happened when the health care system stop getting nice and start getting real.

Names have been changed to protect the innocent and not so innocent but for those want to do research, it all went down in Jackson County, OR. Hospital A and Hospital B were the only hospitals in the county. One medical staff that included basically all the doctors in town took care of the patients at both hospitals. To have all the doctors all work at the same two different hospitals is a little unusual. Usually half the doctors would work at one hospital and half would work at the other.

As a result of this arrangement, Hospital A and B started a bidding war for exclusivity with the doctors and medical staff. Both started to employ the physicians rather than just have them use their hospitals. They had anticipated that Clinton health care reform would select one of them as the regional care provider and were preparing. That's why I called it bloodier than Washington DC health care reform. It was the local manifestation of DC policies.

Hospital A was a larger hospital and did more joint ventures with the doctors, engaging them in partnerships for imaging services or surgery centers where both would share the profits. Hospital B partnered with a health plan to build a little HMO and employed physicians. A large clinic emerged that partnered with Hospital B. The members of the community now had to pick if they wanted to get their health care at Hospital A or B and it's allied physicians and check with their health plan would allow them. Eventually, an anti-trust law suit was filed against the medical staff that had all the doctors. Some of the players felt that the medical staff had been behaving like a monopoly. After 5 years, Hospital B back down, it's allied health plan left the area, everyone started playing nice again. Hospitals stopped trying to lock up exclusive arrangements and everyone contracted with everyone again.

One doctor further explained the dynamics by offering, "We don't have a lot of primary care here so specialists need to check out everything." That was the explanation for why so many high end medical suites were being built and why residents were receiving so many X rays, lab tests, scopes, and other services.

While this doesn't sound very dramatic and bloody, it provided most of the headlines for the local paper. Picture it like Microsoft and Apple battling it out where the stakes included computers, phones, cameras, music, photos as all these services were linked and would only work on Apple or Microsoft. Only it wasn't electronic but health care where these battles would impact which doctor you could see, where you could get sugeries done, and how much you would have to pay.

The fall out was very high utilization of non-essential medical services like imaging, X rays, cataract surgeries, and other elective procedures and a high price for all these services. When I looked at some recent data, a hospital bed costs 50% as much in Southern Oregon as it does in Portland, OR. Surgeries costs were 40% higher and the cost of a visit to your doctor was 10% higher. There is no evidence nor reason that any of those services in Southern Oregon is twice as good as a hospital bed in Portland. Health Plans don't want to do business in this market because they have to pay the hospitals and physicians so much more than anywhere else in the state. The 2 insurance plans that are in the market charge higher prices because they have fewer competitors and medical costs are higher.

What makes this story slightly compelling was that it takes place in a relatively rural, obscure part of the country. If I had been talking about a Boston hospital bed where costs were higher, that could make some sense since Massachusetts General and other Boston hospitals have good reputations. This might change the debate to a question of would people pay a premium for the reputation. However, your average person couldn't identify a city or a landmark in Southern Oregon let alone explain exorbinately high health care costs. The Dartmouth Atlas Project has been chronicling these unexplained variations in price or utilization which has been steadily attracting attention. Overall, this shows that health care in our country is not based on science but whether certain health care providers have monopolies over services or other factors.