There is a place down the street from me that will provide basic services for your car at a nice price. They’ll change your oil for $30 and give it a wash at no extra cost.
Do they do the best job? Of course not. But when you live in New York and drive frequently, you take these kinds of deals when you can get them. Then again, I’m not exactly what you’d call a car guy. My wife and I share a ’95 Honda Civic.
Regardless, it’s a fact of life. If you go to a place that offers multiple services – be it for your car, computer or something else—you pay less when they are bundled up.
Bundling services for lower costs is how the cable industry has thrived since forever. It costs more to get separate internet, cable, and home phone services than it does to combine all three. So even if you don’t use a home phone and don’t watch more than half of the channels they offer on cable, you’re still saving money by bundling. Of course, some might say that will change in the future with HBO and others offering standalone streaming services. For now, the bundle is still king.
The software industry is a big component of bundling. It costs more to buy Microsoft Word as a standalone product than it does to buy Office 365.
Heck, whenever I go to a thrift store or a yard sale, I try to bundle. If I’m buying two things, even if they aren’t related, I’ll try to get the owner to give me everything at a discounted price. Who hasn’t done that before?
I could go on. The point is bundling always saves you money…except when it doesn’t.
A recent study in the Journal of American Medical Association (JAMA), led by researchers at the University of California at Berkeley, concluded that the trend of hospitals and health systems consolidating medical groups and physician practices to improve care coordination and form accountable care organizations (ACOs) has actually led to increased costs for the patients.
We’ve seen these kinds of mergers. Just one month ago, Advocate Health Care and NorthShore University HealthSystem in Chicago announced they were forming a new health system called, Advocate NorthShore Health Partners (ANHP). For what it’s worth, in the quotes promoting this merger, Jim Skogsbergh, President and Chief Executive Officer of Advocate and Mark Neaman, NorthShore’s president and CEO, talk extensively about integrated care systems, physician-hospital alignment, new model of healthcare deliveries, and clinical integration.
The researchers at Cal Berkeley looked at the cost of physician visits, inpatient hospital admissions, outpatient surgery and diagnostic procedures, drugs, and all other forms of medical care except for mental health services over a four-year period in California. They looked at medical groups owned by physicians, owned by a local hospital or hospital system, or owned by a large hospital system that spans multiple geographic markets in the state.
Even when controlling for severely ill patients and geographic differences in cost, the researchers say that costs were a whopping 19.8 percent higher for physician groups in multi-hospital systems compared with physician-owned organizations. Costs at groups owned by local hospitals were 10.3 percent higher compared with physician-owned groups.
Turns out, bundling a healthcare service package is not quite the same as bundling your cable and internet service. “The intent of consolidation is to reduce costs and improve quality, but the problem with all this is that hospitals are very expensive and complex organizations, and they are not known for their efficiency and low prices," stated study author James Robinson, Ph.D., professor and head of health policy and management at UC Berkeley's School of Public Health.
Robinson has a theory why this is the case. He says hospital-owned medical groups are expected to conduct ambulatory surgery and diagnostic procedures in the outpatient departments of their parent hospital. However, he says those hospital outpatient departments are usually more costly and charge much higher prices than freestanding, non-hospital ambulatory centers.
Another issue with consolidation that I’m curious about is the cost of integrating different health IT systems. Every person I’ve talked with about this says bringing together different systems necessary for coordinated care is timely and costly. This wasn’t written about in the study but you can bet that it’s a factor.
Ironically, bundling could be the solution, Robinson says. Instead of bundling services through consolidation in order to gain leverage on payers, healthcare providers should bundle payments, he says. This was similarly touted by another research study, from the Navigant Center for Healthcare Research and Policy Analysis. Authors of that study say that focusing on bundled payments will allow ACOs to focus on better managing patients who need costly acute interventions. It would also lend to a less adversarial relationship with payers, who are necessary to sustainability in forming ACOs.
To alter a line I once heard on The Simpsons, bundling may just be the cause and solution to healthcare’s problems.