We spend a lot of time talking to health system leaders about growth. It’s almost an article of faith among executives that growth is paramount to success. That’s understandable for investor-owned companies—top-line growth is often the most straightforward way to generate greater earnings, which is what investors demand. But for not-for-profit systems, the answer is a little muddier.
One unspoken but obvious reason for growth is leverage—the ability to extract higher rates from third party payers.
There are other, more palatable arguments for increasing scale: it yields greater ability to drive efficiencies in purchasing and operations, to invest in talent and technology, to identify and implement best clinical practices, and to ensure financial sustainability. All of those are real and demonstrable benefits of scale, but more often it’s a desire for greater pricing leverage that underlies many “growth strategies”.
Unfortunately, that kind of growth can be downright value-destroying for patients and consumers. The problem is that growth is on the wrong side of the equation, thanks to our dysfunctional, third-party payment system.
In healthcare, growth is an input to strategy—whereas in other industries, growth is an output, the result of delivering superior services to consumers. Health systems do better by getting bigger, while other firms get bigger because they are better: their growth is earned.
That doesn’t mean that health systems shouldn’t seek to grow, and we certainly spend a lot of our time helping them figure out how to capture growth opportunities. But it’s worth recognizing that it’s the structure of the payment system, not the malevolence of health system executives, that results in leverage-driven growth.
The right focus for policymakers is restructuring incentives to encourage systems to compete on creating value for consumers, rather than punishing health systems for responding rationally to the incentives that currently exist.