According to the Robert Wood Johnson Foundation, direct medical costs for people with chronic conditions represent nearly 70 percent of national expenditures on personal health care. New specialist-driven protocols for diseases such as diabetes, kidney disease, and cancer offer both cost savings and improved outcomes for patients. A few years ago, we heard a lot about how hospitals, especially teaching hospitals, were at the bottom of the financial food chain, while HMOs were at the top. But today, the myth of the carnivorous HMO has been replaced by the reality of eroding HMO margins. Meanwhile, margins for hospitals were a respectable 7 percent in 1997, which compares quite nicely with the 3.5 percent margins posted for HMOs.
Teaching hospitals appear to be holding their own, despite widespread hand-wringing.
As Columbia works to repair the damage to its image and profitability, analysts still disagree about the root cause of its problems. Whatever the final answer turns out to be, it's unlikely that AMCs can base either hope of salvation or fear of dissolution on the for-profit chains. Still, I am convinced that there is a real threat to AMCs lurking within this laundry list of exploded myths. The danger is that AMCs will base their business strategies on perceived wisdom, rather than on a careful analysis of their own specific market conditions. While integration may be the right choice in some specific circumstances, the experience of one AMC that took this advice to heart is telling.