Different (Terroir)tories, Different Healthcare Delivery
In the world of fine wine, it is well known that some types of wine grapes grow only in very specific climates and ecologies. The concept borrowed from the French is terroir. Terroir explains why the finest champagne grapes grow only in a small district in northeastern France.
Health policy advocates have sought for generations to propagate promising forms of healthcare organization across the country. Is it possible that the concept of terroir also applies in healthcare?
Kaiser Permanente’s health plans are a great example. Kaiser has been a darling of health policy advocates because of its integrated structure, global risk, and salaried employment model of physician practice. Yet Kaiser only recently exceeded 10 million in enrollment for the first time in its 71-year history. Moreover, 82% of that enrollment is in two states—Oregon and California, basically unchanged in a decade.
What was the “terroir” that enabled Kaiser to flourish in these states? Kaiser’s growth rested on a combination of the pre-valence of large-scale multispecialty group practices, a tradition of prepayment for health services, and large unionized employers tied to trade, ship building, and defense contracting after World War II. As the unionized sector of employment was displaced by growth in other economic sectors, Kaiser’s substantial presence in large Pacific Coast markets (San Francisco, Sacramento, Portland, Los Angeles, and San Diego) lowered the cost of additional enrollment.
Independent Practice Associations
Kaiser’s dominance in Pacific Coast markets encouraged the growth of another innovation — the risk-bearing independent practice association (IPA). In order to defend their franchises against Kaiser’s steady growth, state medical societies in the 1970s encouraged their members to form rival IPA networks that preserved solo practice.
Private practicing physicians using these IPAs and insurgent payers like PacifiCare and Health Net formed broad regional alliances during the 1980s. IPAs like Hill Physicians, Brown & Toland, and Monarch accepted delegated risk from these health plans through capitated contracts. These IPAs also developed management services organizations that supported small practices and facilitated billing and documentation for these managed care contracts, enabling them to compete for business with the vast Kaiser groups. Delegat-ing risk to physician organized care systems helped some health insurers to keep pace with Kaiser’s growth, at least for a time.
One of the most successful of these risk-bearing physician enterprises, HealthCare Part-ners (HCP), spawned its own salaried multi-specialty group practice and grew to the point where it was acquired by DaVita in 2011 for $4.4 billion. Yet even with a very successful business model, HealthCare Partners has failed to thrive outside the Los Angeles basin.
Provider-Sponsored Health Insurance
Another example of a terroir effect can be found in provider-sponsored health insurance. There have been multiple waves of provider-sponsored health plan development since the early 1970s, characterized by a high failure rate. Nationally, about 15 million people were enrolled in provider-sponsored health insurance plans in 2015. That translates into a total market penetration of about 5% of the total covered population (public and private), and about 3% of the commercial market.
Yet in Wisconsin, provider-sponsored health insurers today account for nearly 40% of the covered population. The very same economic conditions that fostered Kaiser’s growth played a role in Wisconsin. But those places are few and far between.
There is almost nothing except Medicare that is truly national about our health sys-tem, a reflection of the cultural and political differences across the United States. Those differences have economic and historical roots, and uniquely color the traditions of medical practice and healthcare organization.
Looking Beyond Economic Factors
For the past 40 years, American health policy has been dominated by economists. Their economic models presume universality in how physicians respond to incentives. These models captivate politicians and their handlers, and seem to come in waves, like memes in fashion or popular culture, but they have proven neither consistent nor successful.
Perhaps a healthy respect for non-economic factors in health system behavior—often rooted in local and regional circum-stances and in institutional culture—might be a corrective for those who see sweeping “national” solutions to complex problems.
Jeff Goldsmith is a national Advisor to Navigant Healthcare. Lawton Burns is a professor at the University of Pennsylvania. A version of this article originally appeared at The Health Care Blog.