According to America's Health Insurance Plans, hospital consolidation has increased almost 50% since 2009. In 2013, it reached the highest number in the past decade, with more activity even than the surge in the 1990s.
Estimates on the impact of post-merger market pricing find that consolidation can increase healthcare pricing between 5% and 40%. The higher range often occurs after consolidation of hospitals in close proximity. This is thought to happen because a smaller hospital may have more negotiating power when part of a larger system. Also, the new entity often will adopt the highest prices charged by any in the system.
Insurers fight back
This is particularly a concern for groups like AHIP because insurance companies are often the first to feel the sting of the price increases. And AHIP has made this issue one of its priorities, taking on the issue of anti-competitive mergers.
"It is important to make the distinction here," said Claire Krusing, director of communication for AHIP. "You have to look at what the market is like to find out it if will be anti-competitive. When it is, the cost of services rise and premiums track directly with the cost of providing benefits. Patients see higher costs and higher premiums as well. This is a key priority issue that has a real impact on patients."
Krusing said, particularly when the industry is attempting to find ways to reduce costs in the system, it is important to know when mergers may do the opposite. A critical ruling in Idaho in one such case occurred this year. The acquisition of Saltzer Medical Group near Boise, Idaho by St. Luke's Health System, Ltd. was blocked this year by a federal district court judge. The FTC and state attorney general filed a complaint after the announcement of the merger, claiming that St. Luke’s acquisition of the state’s largest independent, multi-specialty physician’s practice was anti-competitive. The court agreed, finding the integration would give the groups 80% market share of primary care in the area.
In an amicus brief filed regarding the Idaho merger, AHIP argues that innovative payment systems and cooperation between providers and payers can potentially avoid the need for consolidation.
According to their brief, "The efficiencies (created by consolidation) ... are being achieved through relationships between health plans and providers—in other words through market innovation—without the need for anti-competitive mergers by hospitals and providers."
Potential alternatives
Krusing said that health plans are on the front lines of implementing new payment arrangements and models of care like payment bundles, ACOs and patient-centered medical homes. These, she said, directly address many of the underlying issues, like increased efficiency and value, that have been cited as the impetus for mergers. The AHIP amicus brief provided examples of how insurer-provider collaboration can create tangible changes in the system in the absence of a merger.
According to the brief, UnitedHealthcare was able, through bundled payments and standardizing treatments, to reduce costs by 34% across the country in cancer therapy. During a pilot program, medical oncologists were reimbursed an upfront fee for a cancer treatment program. The fee was based on a standard treatment regimen for patients with breast, colon and lung cancer. The purpose was to separate the provider’s reimbursement from drug sales. Office visits and chemotherapy were still reimbursed at the normal rate and there was no loss in the quality of care during the pilot.
A patient-centered medical home of CareFirst, during its third year, saw level medical spending drop; costs that were $130 million less than projected for 2013; improved quality care; and a majority of participating panels earning quality rewards equaling a 36% increase in primary care payments. The savings came from the reduction of unnecessary hospital admissions and visits to the emergency department by patients with chronic conditions.
The final example in the brief, a Cigna ACO, was able to improve quality and reduce visits to the emergency department. The participating physicians also had a 4% to 5% lower "medical cost trend" than their peers.
Is it enough?
AHIP is banking that bundled payments and ACOs will provide hospitals with enough revenue to avoid consolidation. But these experiments in new payments don't always prove successful.
A pilot program at some California hospitals did not meet their cost savings goals because of issues like administrative challenges, regulations and problems with risk assumption. The plan was to create bundled payments for orthopedic surgeries for insured patients younger than 65. Funding of $2.9 million for the program was provided by the Department of Health and Human Services' Agency for Healthcare Research and Quality, but both insurers and hospitals dropped out when they realized bundled payments were not going to work for their population.
And even major experiments like the Pioneer ACO program have not been as profitable as providers would like. CMS has released data showing that participants have been able to improve the quality of care, but during the first year of the program, only about one-third of the 32 participants were able to reduce costs enough to receive some of the shared savings. Many groups have begun dropping out of the program, citing cost as the reason.
Want to read more? You may enjoy this story on the most recent drop-out from the Pioneer ACO program.