Partners Healthcare takes a beating on suburban expansion

In most  industries, strong companies expand and take market share from their less able competitors. The results are generally good for the expanding companies and for consumers, who typically get better and/or cheaper service and more players competing for their business. There are lots of examples:

  • Southwest Airlines vs. legacy carriers like US Airways
  • Home Depot vs. regional players such as Grossman’s and Hechinger’s. More recently Lowe’s against Home Depot itself
  • Microsoft vs. IBM. More recently Google vs. Microsoft
  • Walmart vs. Kmart
  • Toyota vs. GM

Now it’s certainly also the case that at least in the retail examples, players like Home Depot and Walmart had a negative impact on smaller, mom and pop players. Yet some of the smaller players have survived and even thrived under pressure from the big guys, by providing better, more convenient service and understanding their local markets better. At least consumers have voted with their pocketbooks and made decisions that were in their own interests.

Healthcare services, though, are a different story. In Neighborhood rivals; Boston hospitals’ suburban expansion sets up a showdown between dueling outpatient centers the Boston Globe reports that academic medical centers (mainly Partners Healthcare) are expanding into the suburbs and how that is harming various parties. The article quotes a number of parties complaining: community physicians, community hospitals, local officials, and state legislators. The only people presenting a sympathetic view of Partners are Partners itself –and me.

David Williams, a consultant who has studied suburban expansion of teaching hospitals, said that Partners is drawing controversy mainly because it’s the most successful hospital system and able to afford more expansion in the midst of a deep recession. Founded by Mass. General and Brigham and Women’s Hospital in 1994, Partners has grown to eight hospitals backed by an endowment of more than $4 billion.

“They believe – and with some justification behind it – that they are a premier academically based system. It’s part of their mission to reach a broader audience,’’ said Williams, who wrote a report on teaching hospital expansion for the Massachusetts Medical Society. Partners, he said, is doing “what most people would do in their shoes.’’

I’ll be the first to point out that healthcare is not the same as the industry examples I provide. In particular: third-parties including the government foot much of the bill, Partners is more expensive than community players without necessarily having higher service or quality, and healthcare is a “service” people don’t always choose to have. Supply of anything –including healthcare– tends to induce more demand, and since that demand is paid for by employers and the public it will drive our already high per capita costs up even more.

And yet, I’d still like to see some of the same principles apply in this argument as they do in my examples. In particular, I’d like to see community hospitals do a better job competing on cost, quality, local knowledge, community mission and convenience so that the public can enjoy some advantages of competition.

June 29, 2009

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