scale

There was an article in the New Yorker, back in April, about the Matthew Thornton Health Plan up in New Hampshire, which worked phenomenally, for a few years. It was a clinic, with an internist, a general surgeon, a pediatrician, a family practitioner, and an obstetrician, and you bought into the clinic for some kind of monthly fee, totally bypassing insurance companies. All the doctors got a flat salary - $30,000, in 1971 - and referred things they couldn't deal with to specialists, and after a while they asked the specialists to accept a flat-fee contract. Those who did eventually started training the general practitioners to deal with simple problems, so instead of referring all patients with blood in their urine or runny eyes the GPs could treat some of them and send the ones with serious or just confusing problems to the specialists.

Basically it was a little tiny HMO, and it was wildly popular. They had reinsurance in case someone got catastrophically ill. It was substantially cheaper than most other plans, so employers loved it. The salaries meant that doctors could see their jobs as jobs, not full-life commitments, and they liked that. Patients got good care: fewer referrals, so they had to go fewer places to get the same care; and their doctors were committed to what they were doing and cared about their patients. And it exploded, becoming the second-largest insurer in New Hampshire before Blue Cross bought it and the whole thing was over.

As I see it, the Matthew Thornton Health Plan did one really good thing, and it had two really good consequences. They radically simplified the administration and overhead that went along with getting and providing health care, without giving up the benefits - lower costs to patients, risk pooling - of a health insurance company.¹ No reimbursements, no need to worry about whether a particular procedure was covered or which forms to fill out.

This certainly cut costs. The US medical system costs about twice as much to administer as the medical system in comparable countries (31% of US medical costs in 1999 were administrative, compared to 16.7% in Canada),² which is part of the reason US health care costs are so high (15.3% of GDP, compared to 9.7% in Canada).³ The Matthew Thornton Health Plan was cheaper because it didn't have to pay someone to be the CEO, or people with M.D.s to decide what care to pay for, or lots of people to process claims and fax paperwork to one another. That's partly a consequence of being a small organization, partly a consequence of its flat-fee structure, and, I suspect, partly a consequence of attracting doctors who didn't expect to make zillions of dollars.

The other benefit may not even be clear in the article. I may be making it up. But I'm guessing that one of the reasons the Matthew Thornton Health Plan was good was that it promoted good doctoring. Doctors weren't providing more expensive care to make more money, like they might in a fee for service set-up. They didn't have separate HMO oversight, so they didn't have to fight with the insurers to get reimbursement. They could focus on treating patients appropriately. The egalitarian set-up - every specialty made the same amount - and the extra training from subspecialists like urologists and opthalmologists promoted a working culture that valued patient care and the health of the organization more than the doctor's ego.

And it died. It was great, and everybody loved it, and it no longer exists.

You can read the article and draw your own conclusions about what went wrong, but let me get up on my soapbox for a minute and tell you: they got too big. I know all about the desire to serve more and more and more people with your essentially not-for-profit program. You've got a good thing, right, and more people should have access to it. But there are things that only work on a small scale. There are practical benefits to having a small program. With an office of ten people, say, you can have weekly meetings with everyone. You don't have to write twenty memos to find out what people think about something: you can just walk around and ask. If you make a change and everyone hates it, you can change things back. There's not enough confusion and complication to have much of a bureaucracy. But it goes beyond that: getting bigger changes how people feel about a program, and that can kill what made it work.

This program depended on a particular ethos: the GPs and the specialists had to believe in what they were doing, and they had to understand exactly what they were supposed to put in and accept that they got less money, more stability, more equality, less hassle. It's easier to maintain an ethos and a sense of mission in smaller groups. You can have a meaningful, experienced identity with people; the inner workings of the group or organization end up being pretty transparent, usually, so you understand how that identity affects the actual program. Each individual is also responsible for more of the program itself: even people in basically administrative jobs are closer to the management of the program and thus feel more responsible for its over-all quality. They feel invested.

At the heart of it, programs work better if the mission of an organization and the people working for it are really close together. Not just non-profits: the reason small businesses often have better food, objects, whatever is that people start their businesses with a certain pride in their work. The bigger it gets, the more capitalist, the more that basic organizational goal around which everything should grow gets distorted. How can the CEO of Nabisco, for example, have pride in its products? The CEO's job is layers and layers from the people who are actually doing something that could involve what the organization actually makes. What this tells us, of course, is something we already knew: Nabisco is about making money, not about the quality of what it produces. The quality is only a means to an end. In most small businesses I know, though, there's an underlying care for the quality of what they make. Not that they're indifferent to money, but it's not the only consideration. The quality of the food or how interesting the clothes are or their relationship to the community are also important: they come from a felt need or desire for something, and want to fill that need or desire well. That care can also spread throughout a small organization, where it can't in a big company. As organizations get bigger over time, even the people who had been really invested in their distinctive quality - like the doctor who started the Matthew Thornton Health Plan - become absorbed in the culture of bigness, bureaucracy, and capitalism. That doctor is now a CEO at a conventional health plan.

For a small program that depends on its smallness, the way you serve more people is not to expand your own program. It's to offer a model that others can replicate. It's hard to hold on to that idea when you start thinking about the money you could make or the people you could serve if you would just expand. But scale, in and of itself, affects program and business quality. There are ways around it, of course, but big organizations can never completely avoid the problems of bigness. I think that's what the Matthew Thornton Health Plan found out when it started expanding.

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1. The same article mentions a surgeon in the L.A. area who doesn't accept insurance: if you want him to do your surgery, you pay cash and either just deal or fight with your insurer yourself. It's a radically simple process, but it's only an option for patients with a lot of available cash.
2.Physicians for a National Health Program, 2003.
3. National Coalition on Health Care, 2004.