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Integrated Health Systems Are the Cure

By acting as both insurers and providers of care, integrated health systems offer the best hope for true innovation and cost-effectiveness in health care. Pro or con?

Pro: Integration Is the Best Medicine

Fixing the health-care system means fixing the misaligned incentives that currently drive costs ever higher with little regard to quality. Currently, when providers and hospitals offer what most of us would consider higher-quality care—encouraging primary care, chronic disease management, and preventive measures to help us avoid costly hospital stays, for example—they end up earning less than they would if they simply allowed us to get sick. In other words, the health-care system was organized long ago to treat illness, not maintain wellness. Today, the result is that cost-saving innovations are often hindered and we have all become victims of a system that constantly favors the status quo over initiatives that could provide more affordable, quality care.

However, some health systems are able to bypass this senseless predicament. By acting as both insurers and providers of care, integrated health systems have managed to bridge the punishing chasm between the financing and delivery of care. Rather than penalizing innovation, integrated systems have a great interest in fostering ideas that deliver better care at a lower cost. As a result, they are often the first to adopt innovations that eventually transform the rest of the health-care system. It’s no coincidence that such integrated health systems as Kaiser Permanente, Geisinger Health System, and HealthPartners are among the nation’s top performers in both quality and cost.

But Americans shouldn’t have to wait for an entirely new health-care system to be built when innovation is already taking place within the health-care system. We should encourage the development of additional integrated health systems so that we all can access their more affordable avenues to quality care.

Con: A More Innovative Model Will Emerge

Successful disruptive innovations in health care will provide more care at less cost than we can currently imagine. Many of today’s great, integrated systems were once disruptive innovators but they now provide more for less only by present standards. In turn, their current business models and cost structures make it very difficult for them to significantly increase their care while simultaneously lowering their costs. They are the cream of a not-very-effective crop.

Transformational innovations are more likely to come from outside and under these systems. For example, innovative employer/provider partnerships, coupled with organizations that already manage complex disease in simpler, more holistic ways (e.g., home care and hospice), are more likely to dramatically increase care at lower cost.

You don’t have to be brand-new to lead a transformation. Data from health-care and other industries clearly show that disruptive business models and methods strategically developed inside of existing systems can increase quality and affordability. When existing systems replicate and accelerate those innovations, they transform their industries. However, current integrated health-care organizations are overly focused on trying harder to reproduce prevailing structures and methods. That keeps them from developing the disruptive innovations that will transform care.

Whether they arise from outside or inside current organizations, successful disruptive business models will follow a predictable path. They will break down the barriers to getting patients exactly what they need at continually lower cost. They will also create a unique competitive advantage. Leadership will leverage that advantage to opportunistically and relentlessly improve and expand. That’s how we will transform health care.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek,, or The McGraw-Hill Companies.

Reader Comments

henry ojeniyi

Ridiculous! This is not really a health-care reform. How can you reform a dilapidated health care without talking about "prevention"? The best prevention care is an integrated system of our emergency western care system with the Oriental medical aproach of Acupunture and herbal care system. Go ahead, do your home work and I bet that you will aggree with me.


Henry Heitlauf

Obama kept saying change we could believe in the need to direct his team to do that; otherwise he is just a good speech maker. These are simple comman sense items that could be handled by Medicare staff if they were not handicapped by the lawyers/lobbyists who make the laws. My dad had a fall recently and was given a spandex brace. The cost was $937--at most a $197 item and actual cost to manufacter, $30. Keep putting the word out there. Maybe someone is listening.

John Kenagy

To henry ohenlyl: You may be correct, but what you describe would be a very disruptive innovation. The problem is the data is overwhelming that established organizations will find that almost impossible to create what you describe unless they approach it as a disruptive strategy. It's not ridiculous; its the just facts.

To Henry Heitlauf: a perfect example of "trying harder" at what we currently do. Organizations taking a disruptive cost would provide more care at lower cost and simplify the system in the process. But to start, they would have to think and act differently. See my website at for examples.

Thanks for both comments!

Karl Palmer

Might integrated systems still have a leg up on non-integrated systems when it comes to having the capacity to really support the experiments necessary for innovation? Integration of fewer middlemen, fewer constraints, fewer yet more direct connections, etc.? While I believe that better models will emerge, might integrated systems be the most likey breeding ground to launch those innovations?

Raymond J. Lanzafame, MD MBA

It is always a fascination to see so-called reformers discuss variations of policies and programs that promulgated the HMO concept. Such strategies, including per member per month prospective payment to the primary care provider AKA "Gatekeeper" have not genrated cost savings nor have they demonstated an enhanced level of prevention/managment of chronic diseases. The current demon of health is obesity. However tobacco, ethanol, guns, illicit drugs, and vehicular speed account for large expenditures for health care as well as expenditures throughout society. The true disruption would be to responsibly curtail their use by legislative and serious taxation. The other true disruption would be to make the patient consumer responsible for his or her own care and its cost. Without much responsibility for the cost of care or prevention, consumers will tend to consume, and with a disconnect in charges and payment, prices will continue to rise.

Alan Spotnitz

I suspect I may be a little biased as one of Dr. Kenagy's disciples believing that long term improvement in health care delivery only as disruptive changes occur. At the same time, I must concur with Dr. Hwang that integrated systems can make a big difference today. I recently visited Geisinger and was impressed with the strides they have made. Perhaps the next interim disruption will be aligning all our current parties into such systems. I doubt it will be as easy as some people make it out to be.

Colin Baird

The health-care delivery system is broken. Why do you think the mascot of health care is the waiting room? It is filled with defective work and workers unprepared to handle the day to day operations, because their day is filled with ambiguity and mixed signals.

I utilize "adaptive design" in my everyday work as a supply chain manager for a large metro hospital. I have already streamlined the supply chain at two medium size metro hospitals, reducing redundancy and centralized the entire supply chain, reducing several million dollars of supply spend for two consecutive years. Extrapolated that out, and it would be a cost savings 6 billion dollars per year nation wide.

And as far as the cost of the supplies, you should look at the GPOs for that. They scalp on average 1 billion dollars per year attaching fees to the manufacturers who pass that along to the health-care system. They have anti-trust and anti-kickback legislation that protects them from stealing from the very patients that need those supplies to get well.

Robert Beltran, M.D., M.B.A

Truly disruptive innovation will take place once the face of health care leadership starts to mirror our diverse ethnic populations that make up our health care patient population. That would be true adaptive change, which is critical to fixing our broken health care system.

Presently we have the strategic and tactical ethnic physician leaders, but their voices are being quieted by the politics and structural barrier to entry into a complex industrial medical system designed by special interests. A culture of inclusion rather than exclusion needs to be embraced, especially by medical leaders to create the necessary expertise to serve the diverse ethnic population of America.

Colin Baird

True disruptive innovation occurs when physicians align themselves closer to the health-care delivery system rather than the vendors. This is not to say that all physicians are acting in this manner, but I am implying that the relationship between the physicians and the vendors appears to be more important than the relationship between the physicians and the health-care delivery system that supports them and their patients.

If physicians were more closely aligned with the health-care organization, where they treat their patients, hospitals could save a lot more money during negotiations.

I do agree with Dr. Beltran, that senior leadership needs to provide more support to the physicians and the patients they serve. And that could be accomplished by including them in contract negotiations and requesting recommendations on how to better serve the patient population, regardless of cultural background of the physician or the patient.

Best Regards

John Kenagy

Response to Karl and Allen: Integrated systems may have a leg up, but they have to work through the challenge of thinking they are the answer the way they currently work if they are to provide much more care at much lower cost. In my experience, it's definitely possible, and both Karl and Colin know the challenge of actually doing it.

The danger for the "non-integrated world" is trying to implement integration from the top-down. We tried that and capitation in the Managed Care Revolution of the 90s and it failed miserably. My work and research shows it can be done, but it takes a much more adaptive strategy than top-down methods.

The great health-care organizations of the 21st century will be as different from current models as Mayo and Kaiser were from the reigning methods of deliver when they got their start.

John Kenagy

Colin's second comment says a lot.

"Disruption" has such a negative context, but the fact is such innovations are disruptive only to the established organizations who find it almost impossible to make the change.

Bringing physicians, management, staff, and patients together as a true team will make the difference. For those on the inside, that won't feel disruptive--it will feel energizing and empowering. Creating that kind of team work is what adaptive aesign is all about.

I believe the design for success in 21st century health care will take many iterations and improvements of that kind of team.

Thanks to everyone for their comments.


California law prevents the creation of new integrated health care systems. I assume many other states have adopted similar measures, to protect the health insurance industry.

Congress should have focused on passing legislation to encourage the creation of such systems across the country, as they meet many of their stated health care objectives without rocking the entire industry. But that would have been too simple!

Ian M,

A proper insurance system has a very large pool of customers, all randomly selected, (not class or occupation).

In this way, those who lose in the lottery of life are supported by those who win. All are assured, which is really what we pay for. Financial analysis of results from large unselected pools guarantees gains from preventive medicine and increased communication between physicians.

A commitment to human values and dignity at the end of life may also provide gains from self-recruitment, especially from those who fear the ITU, the Insensitive Care Unit.

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