Partners CEO makes his pitch
Torchiana says hospital system isn’t Public Enemy No. 1
Photographs by Frank Curran
DAVID TORCHIANA, THE CEO OF PARTNERS HEALTHCARE, speaks very softly for a man who is 6-feet-6, weighs north of 200 pounds, and goes by the nickname of Torch. He is sitting one morning in early March at a table in an 11th floor conference room at the Prudential Center, where the corporate offices of Partners are located. He answers questions about himself in short, clipped sentences, but goes on at length when defending the hospital system he oversees. He has a stack of 24 charts in front of him containing the data that he uses to make the case that Partners is not Massachusetts health care’s Public Enemy No. 1.
Partners’ two flagship hospitals — Massachusetts General and Brigham and Women’s — are regarded as among the best health care institutions in the world, but they are under attack for commanding hefty premiums for care that study after study has shown is no different in quality from what most other hospitals provide at lower cost.
The Partners price differential is slowly emerging as a major political issue. Attorney General Maura Healey, who like her predecessor has documented a huge gap between prices at Partners hospitals and others in the industry, late last year called the Massachusetts health care market dysfunctional and said the state should consider some form of intervention.
As policymakers try to figure out what to do, the Service Employees International Union is taking the issue to voters. The union is pushing a November ballot question that attempts to address the pricing disparity by unleashing Robin Hood on Massachusetts health care. The question would bar licensed commercial health insurers from paying any hospital more than 20 percent above or 10 percent below the “carrier-specific average relative price” for a service. If approved by voters, the question would take close to $450 million from the hospital rich (Mass General and the Brigham) and redistribute that money to the hospital poor (nearly every other hospital in the state).
Over the course of 90 minutes, Torchiana patiently goes through his charts, making the case that the ballot question is a terrible way to make public policy and that it won’t solve the problem it seeks to address. He acknowledges Partners hospitals charge more than their competitors for some services, but says they lose money on 60 percent of what they do. Finally, he says health care spending in Massachusetts is not as out-of-whack as we think. He even suggests, given the state’s income level, we’re getting a pretty good deal.
It’s a long, drawn-out argument, and one that will probably have to be boiled down to 30-second snippets if the ballot question fight turns into political Armageddon. That obviously bothers Torchiana. “It’s really hard to talk about this complex stuff without boiling it down to things that are really simplistic,” he says.
The 61-year-old Torchiana has been in his current position for a little over a year, and still isn’t well known publicly. He was born in Evanston, Illinois, to parents who were both educators. He attended Yale, graduating in 1976, and then spent a year at Cambridge University in England before heading on to Harvard Medical School. He did his residency at Mass General, joined the hospital’s surgery department in 1989, and became chief of cardiac surgery in 1998. It was there he became a mentor and close friend to Ralph de la Torre, who now runs Steward Health Care, which is supporting the SEIU ballot question. After a stint running the Mass General physicians group, Torchiana was hired as Partners CEO in February 2015.
Torchiana likes to read, as many as three books a week, everything from serious works to trashy thrillers. He’s reading Nate Silver’s The Signal and the Noise at the time we chat. His parents didn’t keep a TV in their home, but he does. Still, he says, he personally watches little other than Patriots and Red Sox games.
At the time Torchiana moved into the top spot at Partners, the company was on the defensive, viewed as something of a bully. Its push to acquire South Shore Hospital, opposed by Healey, was shot down by Superior Court Judge Janet Sanders, who worried the acquisition “would cement Partners’ already strong position in the health care market and give it the ability, because of this market muscle, to exact higher prices from insurers for the services its providers render.”
“I know most of them,” he says. “We’re the largest private employer in Massachusetts [the Partners hospital system employs 68,000 workers], so they’re as interested in us as we are in them.”
He indicates he approaches most of the problems facing Partners the same way he did as a practicing surgeon. I ask about the surgeon stereotype, that they have a reputation for cutting first and asking questions later.
“I guess I’d put it a little bit differently,” he says. “One of the keys to working as a clinician generally is that you have to gather information about the patient and the patient’s circumstance. Lots of times, the different pieces of information don’t add up perfectly. In many circumstances, you have the luxury of time to wait and let the course of the illness define it. In other circumstances, you don’t and you have to act with ambiguous information. And that’s the part of surgery that differentiates it from other fields. For a good surgeon, the skill is not in the hands, it’s in the head.”
— BRUCE MOHL
COMMONWEALTH: When Gary Gottlieb stepped down as CEO a year ago to go work at a nonprofit known for its health care work in Haiti and elsewhere, what kind of executive was the Partners board looking for as a replacement?
DAVID TORCHIANA: I think they were looking for someone who understood the external environment and had credibility within the organization.
CW: What do you mean by external environment?
TORCHIANA: Well, there’s a lot changing around us. I don’t know anyone that really understands it, but there are relative levels of understanding. In particular, there’s the implications of health reform and the changes in the payment system that are going to impact us. I’ve been following that very closely for a long time. It’s been a major interest of mine, as would be the case with any leader in health care.
CW: There’s also the ballot question being pushed by 1199SEIU, which would set the rates hospitals are paid by commercial insurers. The wording of the question would require no hospital be paid more than 20 percent above or 10 percent below the carrier-specific average relative price for the service. Why does Partners oppose it?
TORCHIANA: First of all, it’s bad policy. It’s not the way to solve the problem it’s purportedly addressing. Secondly, we would have to oppose it because it’s so profoundly threatening to us.
CW: How threatening is it?
TORCHIANA: Of the $467 million to be extracted in rates, $450 million of it comes from Partners. About 66 percent of our hospitals’ expense base is in salaries and people. If you divide $450 million by two-thirds, you get $300 million, which works out to somewhere around 3,000 FTEs. It’s supposed to be implemented on January 15, 2017. If it happens, we’ll have to go through a pretty massive reduction in workforce.
CW: I assume you’re assembling a political team to address this?
TORCHIANA: We have a political team. We are talking a lot about this, but the Massachusetts Hospital Association is going to take the lead on the ballot question. The MHA is unanimously opposed to it.
CW: So you plan to let the MHA take the lead in opposing the ballot question, even though nearly all of its members stand to benefit from it?
TORCHIANA: I certainly hope the MHA remains united on this. It is obviously tricky for the MHA to unify against a bill that is aimed at one of its members and potentially stands to benefit more of its members. But I think what’s holding the leadership together is the principle that this is not a good way to make health policy. Moreover, if you look at the way the money gets redistributed, it’s being painted as a redistribution that rescues distressed hospitals. But in fact the way the distribution happens under the formula is the money gets broadly distributed to all hospitals. So it really doesn’t accomplish the objective.
CW: What about Steward Health Care, which is headed by Ralph de la Torre? Steward isn’t a member of the Massachusetts Hospital Association and it’s supporting the ballot question, which would steer more than $21 million its way.
TORCHIANA: Ralph and I are friends. We often don’t agree on business. We certainly don’t agree on this.
CW: I take it you haven’t been able to convince him otherwise?
TORCHIANA: Oh, no. I have no illusions that I’ll be able to do that.
CW: How much money are you prepared to spend fighting the ballot question?
TORCHIANA: It’s something short of $450 million, but yes, we will spend on this if we have to. I hope we don’t. Talk about wasted expenditures on health care. It’s not a constructive place to be burning through millions of dollars.
CW: Some people say Partners has an effective monopoly in Massachusetts. What do you say to that?
TORCHIANA: Unless you really get into gerrymandering the geography or service areas of hospitals, it’s very difficult to make an argument that Partners has anything approaching monopolistic market power based on the number of patients we care for, the number of doctors we have, and the number of facilities we operate. We’re somewhere between 20 and 25 percent of the relevant marketplace. We’ve actually declined. Our community network is about 20 percent smaller than it was five years ago. We intentionally reshaped ourselves with the intent of doing some acquisitions. The acquisitions, as you know, didn’t materialize. So we ended up down.
CW: The courts shot down your merger with South Shore and effectively put your acquisition of Hallmark Health System on hold. Any change there?
TORCHIANA: We still believe it’s the right plan but we believe there’s little to no chance of it being approved. So they’re in the process of seeking other relationships. My hope is at the conclusion of that they’ll feel like the relationship they’ve had with us the last 20 years is the best thing available. We’ll build on that and hopefully wait for some time in the future, when maybe some of the policy thinking changes.
CW: In the meantime, you plan to expand abroad, right?
TORCHIANA: We have flat population in this state. We’re not able to create any new network or community access under the regulatory environment as it stands. We’re going to look beyond the state’s borders and the country as a whole. Obviously, this is not a novel strategy. Every other medical center and health system in the country and even the planet is trying to do the same thing. We’ll do it. We haven’t really put much time and energy into it in the past, but we will do so increasingly. The basic idea is that a relatively small ratio of augmented distant business can make up for the loss of local business and for the stagnation in local payment rates.
CW: What do you see as the big challenges facing Partners?
TORCHIANA: We’re a national brand. We are the preeminent academic organization for life sciences research in the country. We have very substantial and strong clinical programs at our two flagship hospitals [Massachusetts General and Brigham and Women’s in Boston]. We have a superb specialty hospital in behavioral health [McLean Hospital in Belmont]. We have a superb specialty hospital in rehab [Spaulding Rehabilitation Hospital in Charlestown]. And we’ve built a community network to basically consolidate the pieces together that give us a certain base in this region. We face all the same challenges that every academic health system faces nationally, and then we face some additional ones by virtue of the unique threats in Massachusetts.
CW: Before you go on, can you connect the dots for me between life sciences and Partners hospitals?
TORCHIANA: [He picks up a chart.] I like to call this the slide Teddy [Sen. Edward M. Kennedy] never let us show in Washington. These are National Institutes of Health grants. This is Massachusetts [pointing to tallest bar in graph] and we’re double the next strongest state, which is Maryland, where John Hopkins is located. If you look at institutions around the country, the Brigham and the MGH are right around Nos. 13 and 15 over recent years. Added together, Partners is No. 1 in terms of NIH grants. Those grants have generated 113 Partners startups in the region, 200 in the world. And this chart shows the impact in Boston. Boston life sciences companies valued at more than $100 million have tripled over the last 10 years. No other city is moving at anything like that rate. Larry Summers describes Boston as being to the modern evolution of science as Florence was to the Renaissance. He believes this is the world’s epicenter for very dramatic changes in life sciences which will have very profound impact on human health over the next 10 to 20 years.
CW: Tell me how you see the national picture.
TORCHIANA: The traditional story on US health care is that it’s more costly than the rest of the world and it is pretty mediocre on the results that it delivers on an aggregate population basis. Clearly, the system is very much a hybrid, a mixture of profit, not-for-profit, government, private-payer employer, and out-of-pocket. It’s a real jumble the way that it’s organized. But there’s a couple things that I think cut through the confusion. The first is that we’re on pretty much the same cost trajectory as the rest of the world. If you talk to ministers or hospital leaders in other countries, they’re all trying to grapple with the same thing. It’s a universal problem. The second thing is that we fund much more of our health care system out of the employer-based insurance system and less of it from government. If you think of us as being 50 to 75 percent more costly than the Western mean, then a big piece of that is cost shifting to the employer-based system. Basically, underpayments by government are placed on the back of the employer-based system to balance the equation.
CW: Why is the US such an anomaly internationally?
TORCHIANA: We have the lowest rate of taxation in the western world and we spend far, far less of our taxes on social welfare. Because we spend so little on social welfare, a lot of the burden that would normally land on social programs in the rest of the world lands on health care in this country, which is one of the root things that contributes to the cost of health care. But the most interesting part of it is the aggregate health care outcomes that we talk about – life expectancy, infant mortality, etc. – they’re much more highly correlated with social spending than they are with health care spending. We have this very fragmented system, we have very high costs, and we have a strong aversion to taxation. It’s not easy to find a way out of this. It’s actually miraculous that the Affordable Care Act got passed because of all these conflicting powers and the very strongly embedded status quo.
CW: What do you see going on in Massachusetts?
TORCHIANA: You’ve got the US, which is the most costly in the world for health care, and you’ve got Massachusetts, the most costly in the US. An example would be hospitals, where per capita costs are 50 percent higher than the rest of the country. But when you break that down, Massachusetts hospital costs are a little bit unique relative to the rest of the country. The payment differential results from a combination of a higher geographic payment adjustment to Massachusetts hospitals, the much higher percentage of research dollars going to Massachusetts hospitals (8 of the top 14 in the country), our relatively higher number of training programs and residents, and payments associated with out-of-state patients. All of these things are assets to the state. When you add them all up, our differential is about 8 percent – the 50 percent falls to 8 percent. And then if you look at that as a function of the cost of living in Massachusetts, it absolutely flips. If you index this against income in the state, we’re actually in the bottom 10 percent of the country in terms of health care costs relative to the income of the state. When you think about that, we have this extraordinary health care system. We have terrific hospitals, we have great quality outcomes, we have the best access in the country, and we have this incredible life sciences juggernaut. We’re actually getting all of it at a relatively low cost in terms of affordability.
CW: What does that chart in your hand show?
TORCHIANA: When you take family premiums, which in the commercial market are probably 90 percent of health care premiums, and you index them against income, we’re 49 out of 51. This includes the District of Columbia. We have consistently been between 43 and 49 over the last 10 years. We’re near the bottom, not near the top.
CW: What does this other chart show?
TORCHIANA: This is the cost trend over the last 10 years: Massachusetts versus the US. Massachusetts is actually on more of a declining trend than the rest of the US. There was a bump in 2014, but the question is, is it a blip or is it real? At least provider costs didn’t go up above the benchmark that year. The costs that went up were Medicaid and specialty pharmacy. This chart is from the most recent Health Policy Commission cost-trends report. Since 2011, health care spending has grown relatively slowly in Massachusetts and the percentage of family income spent on health care has declined slightly to 22 percent. And it’s growing more slowly than the rest of the country. This chart is pretty amazing. The percent of residents in Massachusetts paying more than 10 percent of income out-of-pocket — this is the measure of impact on individuals — is the lowest in the US.
CW: You seem to be saying health care is a good deal in Massachusetts relative to personal incomes here.
TORCHIANA: One of my unfortunate moments last year was being cited in a headline saying health care is very affordable in Massachusetts. This was the data I was citing, but my comment became a headline and it became a business quote of the year. I’ve been sort of casting around trying to put that into context and the best I’ve come up with is that Marco Rubio seems like he’s the nicest guy in the Republican primary. That does not mean I think Marco Rubio is a nice guy. It means I think he’s the nicest guy of the Republican frontrunners. I don’t think Massachusetts health care is very affordable at the level of the individual. I think it’s relatively affordable compared to national markers and I think we have a lot to show for that. I would actually say we have a terrific health system in Massachusetts at a lesser cost than health care in the rest of the country. The challenge is, at the end, that health care costs too much. It costs too much in this country. It costs too much in Western Europe. It’s a very challenging trend, particularly in this country.
CW: Why particularly in this country?
TORCHIANA: Government health-care spending crowds out other discretionary spending, including teachers and cops and local aid and all of that stuff. Which is why legislators at every level, not just state government, are trying to find ways of putting a lid on this. For employers, health care spending reduces their global competitiveness because they’ve got to keep funding health care increases every year, while their competitors in other countries don’t. So it’s really a paradox in that we’re seen as the most costly of the states and obviously Partners is seen as a costly component of Massachusetts, but in reality the national problem is really miscast and Massachusetts is doing reasonably well. But health care costs remain a serious issue. It’s really about what do you do that’s constructive and logical to manage health care costs as opposed to trying to specify that you’ve got one particular organization at the root of it.
CW: Yet most policymakers — the attorney general, the Health Policy Commission — feel the price differential paid to Partners hospitals is a big problem. A recent report by the Health Policy Commission said research by multiple state agencies over the last six years has documented a wide variation in hospital and physician prices that is not tied to measureable differences in quality, complexity, or other common measures of value. The report said the unwarranted price variations, combined with the large market share of higher-priced hospitals, is a major contributor to rising health care costs. The report included as evidence a slide showing the cost of delivering a baby at various hospitals, and Mass. General and the Brigham were the most expensive.
TORCHIANA: That slide has been around for 10 years. This is not a new creation of the Health Policy Commission. My answer to this is very simple and it’s trite, really. We get paid more for deliveries and cholecystectomies [gallbladder removals] because we’re supporting a burn service that’s available seven days a week, 24 hours a day for the region of New England. There’s a whole lot of things that go into tertiary centers that are necessary for the public good that get funded through this crazy payment system that we have.
CW: What’s crazy about the payment system?
TORCHIANA: We lose money on 60 percent of what we do and we actually generate a margin on 40 percent of what we do. In aggregate, hopefully, we break even or have a 1 or 2 percent margin at the end of the year. The things that we get overpaid on allow us to do the things that we get underpaid on. You get underpaid in two categories. One is the payer source: The government payers tend to pay less. The second is what the actual condition is that’s being treated. Certain conditions tend to pay better than others, and there really is no rhyme or reason to it. The system is almost random in terms of what generates a margin and what doesn’t. Of course, all the focus is on the things for which we get paid more. There is little focus on the things that are underpaid.
CW: The Health Policy Commission said quality is the same between hospitals. Is quality all the same?
TORCHIANA: When we were trying to acquire South Shore Hospital, all of a sudden all quality was not the same. In the report that rejects the merger, the HPC said both Partners and South Shore Hospital are better than average in quality so there’s no quality argument for allowing South Shore to join us, which is a little odd. We’re better when it’s good to resist an acquisition but we’re not better when our prices are being looked at.
CW: How do you measure quality?
TORCHIANA: The strength that we have is that patients want to come to our hospitals. There’s actually a statistic that measures this. It’s called willingness to recommend. When you discharge patients from the hospital, the law requires that they receive a survey. One of the final questions basically says, would you be willing to recommend this hospital to a friend or loved one? Mass General and the Brigham have two of the highest ratings in the country. That’s why the hospitals are successful, because people get good care and they want to come back. Whatever leverage we have is because of the loyalty of the population that we serve.
CW: In our last issue, Stuart Altman, the chair of the Health Policy Commission, said a CAT scan or an MRI would cost more at a Partners hospital than at a community hospital [see “Health care watchdog,” Winter 2016].
TORCHIANA: MRIs are one of the things we get paid with a margin to help fund psychiatry and pediatrics. So that’s correct. If you just attack the things that get paid at an amount greater than cost, then we’re left with the things that get paid at an amount less than cost. We would love to be able to even out the rates so that everything had a small margin associated with it. That’s not possible to do when you have the system that exists.
CW: A lot of policymakers think something needs to be done about the cost differential between hospitals. You don’t, but do you think anything should be done?
TORCHIANA: You could say, and I would not argue, that this is such a muddled situation and the attention on this is so intense that somebody ought to step in and regulate this in a much more sensible way. The problem with that is that it’s not clear in doing that that you actually end up with a better result at the end of the day. Most of the other Western economies that are grappling with the same problems in health care costs have a significant problem with access that we are relatively free of in this country. Most of them have a very strong secondary layer of care that is layered on to the top, which is really only for people who can afford to pay for it. We are, I think, going to end up with something like that in the long run because that’s the premise that underlies consumer-driven health care. When you put prices out there and you give people incremental out-of-pocket expenses, essentially you’re dividing the population into people who can afford to pay more and people who can’t. It does limit health care cost growth, but it’s not progressive from a social standpoint. It’s regressive.
CW: What could be done?
TORCHIANA: Literally the best way to do it is to put a lid on it and say no more money is going in. There’s a belief that a significant amount of health care expenditures are wasted, spent on things that don’t improve health. The Health Policy Commission says it’s between 21 and 39 percent. If there’s that much of an opportunity, if you put a lid on it, people should figure out a way to spend money more effectively. That’s the basic idea behind a statewide price cap. Give people a chance to figure out how to do this better.
CW: How about managed care, the notion that you give health care providers a fixed sum to provide care and let them manage within that budget? Is that working?
TORCHIANA: That’s what we did under a federal demonstration project targeting the 10 to 15 percent of the population that consumes two-thirds to three-quarters of health care costs. This is people with mostly chronic illnesses. If you try to manage this the way health care is currently funded, you have people with eight diseases go see eight specialists. And they come back every month or two and the specialists try to coordinate things. We know it doesn’t work particularly well. If you can remove that obstacle, and say here’s some money in advance, manage these people proactively and then the amount of money spent goes down, we’ll give you half the money saved and the government will keep the other half. We did that for high complexity Medicare patients, average age 75, 20 percent mortality per year. We saved $3 for every dollar spent. People say fee for service is a bad way to pay for medicine because it encourages people to do more stuff. It’s much more complicated than that. When we did this program, we were two years into it and the patients were costing more than before we started the program. That makes sense because we put in case managers, pharmacists, and all that other stuff. We were pretty terrified because if we didn’t save any money, the government wasn’t going to let us keep it and we were going to have to pay it back. Then, starting around 18 to 24 months, the cost started to fall. It takes time for medical practice to change and it takes time for interventions in chronic illness to have an impact. These programs are going to take awhile. I actually think these things can work. We’re putting a huge amount of investment and effort into it. I hope they work. If they don’t, my tenure won’t be very long.CW: To avoid a ballot fight, would you support some sort of legislative solution and what would it be?
TORCHIANA: I think the current system is moving. It’s moving slowly. There’s some interesting data that came out of the Health Policy Commission hearings that didn’t make it into the headlines. Two of the three major payers said they thought the price differentials were diminishing. We’ve seen a significant diminution in our commercial volume from outside of the Partners system. The payment system is tightening up on the movement of patients and the choice patients have in all of these things. I think the market is having the effect that Chapter 224 [the 2012 law creating the Health Policy Commission and setting a cap on health spending increases] outlined for it. Maybe I’m being a little paranoid, but there’s a sense, at least among our competitors, that they’ve got the wind at their back, they’ve got momentum, and they should keep pushing for more and more political solutions as opposed to awaiting market solutions. But I think the market solutions are actually having an impact on us and having an impact on the price differential. I would point out that there’s not a health care marketplace in the country that doesn’t have price differentials. There’s no difference whatsoever between what we have in Massachusetts and what we have in the rest of the country. Again, [in relative health care costs] we’re 49th out of 51. What are we trying to fix?