If there are too many hospitals ...

Three lessons ...

Lesson number 1:

Most informed observers share the opinion that New York has too much hospital capacity. Even when hospital leaders won't talk about it in public, they acknowledge that survivors and the system as a whole would be much healthier if many weak hospitals were allowed to fail.

But we also know that in New York, we resist the practical application of the principle. And we also "know" that most folks expect government to lead on closing hospitals (old habits die hard). But relying on government action for such politically controversial actions is the height of optimism, if not fantasy.

So take a look at what's happening  in Denver. Two of Colorado's largest health insurers are excluding a set of hospitals from the companies' networks of preferred providers. They're doing exactly what you'd expect in an over-saturated market. What about New York's over-saturated hospital market?

How would New York handle such a step? Probably force the insurer to reverse direction. Never mind that Medicaid ought to consider such a step, you can imagine the wailing and gnashing of teeth about the awful managed care plan's behavior.

So if politics can't do it and the market can't do it, we can expect New York to keep on doing what it's been doing for 30 years, throwing good money after bad.

Lesson number 2:

If you read the Denver story closely, you'll see that the hospitals being excluded are those that are "considered a leader in metro Denver in publicly reporting data on quality and safety."  For all the talk about "competing on quality," until they prove otherwise that's not how most health plans make their decisions. It would be nice to see some clear exceptions, but so long as employers are making collective decisions on behalf of their employees and so long as employers are going first with plans that are less expensive, this is the way it's going to be.

Lesson number 3:

Most discussions of "competing on quality" have to do with individual decisions regarding care seeking. But lessons one and two suggest a misalignment. In order to make quality-based competition work, either health plans and employers have to have a much greater stake in quality or employees have to have a more immediate stake in plan choice and cost and the decision trade-offs between them. With today's arrangements, most employee/patients don't think about these issues until they have an immediate need and by then it's too late.

Which is easier, creating some artificial inducement for employers and health plans to re-balance the cost/quality trade-off or to ensure that employees have a greater stake in costs and a greater role in plan choice? The latter choice seems far simpler.