Featured Articles: Healthcare Reform

Healthcare Consolidation and Economic Trends

Monday, August 17, 2015   (0 Comments)
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Editor's note: Adele will be presenting on several topics at our Fall Primary Care Conference in October.


 

Question:  It seems like I have been hearing a lot about consolidation in the healthcare market – physicians seeking employment with hospitals, EHR vendors merging and, most recently, large insurance companies merging.  Is consolidation real, and what impact will this have in healthcare and how we pay for services?

 

Answer: 

Since the ACA was enacted in March 2010, the U.S. has seen a growing trend in healthcare consolidation among physicians, hospitals, vendors and health insurers.  Most recently, Anthem Blue Cross and Blue Shield announced its bid to acquire Cigna for $54 billion, and Aetna is seeking to acquire Humana for $34 billion.  If these deals are approved, these two carriers will cover more than 87.7 million Americans, nearly one-third of the U.S. population, including privatized government coverage programs.

 

Many have had their eye on the provider consolidation trend sweeping the nation.  According to the American Medical Association (AMA), there has been measurable movement toward physician and group ownership by non-physician organizations such as hospitals since the ACA was passed.  The AMA’s 2014 survey revealed that only 35 percent of physicians described their practices as being independent (down from 49 percent in 2012 and 62 percent in 2008), and 53 percent report being employed by a hospital or large medical group (up from 44 percent in 2012 and 38 percent in 2008).

 

In the non-physician sector, Healthcare Financial Management Association (HFMA) reported 346 mergers and acquisitions in the first quarter of 2015 (up 109 percent from 2014), including: 23 hospital transactions totaling nearly $700 million; 55 long-term care deals at $1.6 billion; and 16 home health and hospice contracts at $138.5 million.  Deloitte has modeled such trends and is predicting that only around 50 percent of the current health system will remain intact over the next ten years.

 

In the provider world we have also seen the proliferation of independent providers (including hospitals, physicians, and non-physician providers) consolidate for business operations through legal entities such as accountable care organizations (ACOs), clinically-integrated networks (CINs), integrated delivery networks (IDNs), and other models for care coordination and value-based reimbursement.  For example, in the ACO realm, only ten ACOs pre-date the ACA.  As of Jan. 2015, there were 748 ACOs – a 700% increase in just five years.[1] 

 

Provider consolidation has occurred in part as a defensive strategy for providers who just “want to practice medicine,” but also to address shortcomings in coordinated care delivery and to increase the power of providers to leverage a collective influence in contract negotiations with payers.  Both the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) have issued a final statement that eases the burden of antitrust for ACOs and provides associated guidance, allowing these models to flourish.  Now that payers are joining the consolidation fray, the argument is being made that mergers in the insurance industry simply level the field from a contracting and payment negotiation perspective.  

 

The recent announcement of mergers comes from several insurance behemoths and has the healthcare industry considering the impact on the ultimate consumer – the patient.  In July, Anthem (a publicly-traded BCBS plan in 14 states earning $73 billion in 2014 with 38.5 million insured members) announced its intent to acquire Cigna (a plan in all 50 states earning $35 billion in 2014 with 15 million insured members).  That same month, Aetna (with $58 billion in revenue in 2014 and 25 million insured lives) declared it was seeking to acquire Humana for $34.1 billion ($48.5 billion in 2014 revenue and around 12.6 million medical members and a large Medicare Advantage carrier).  What does this mean for Americans?

 

Consider that there were 321.5 million Americans as of August 2015:



 

Our number of health plans is dwindling.  The concern is that health plans are becoming bigger, not smaller, and dominance leaves communities susceptible to market power associated with antitrust.

 

The FTC and DOJ assess antitrust risk using the Herfindahl-Hirchman Index (HHI).  This indicator is used by economists to gauge the size of an entity (for instance, Anthem) in relation to its industry (e.g., insurance); simply stated, HHI measures the level of competition and distribution within a defined market.  For example, one study supports that an increase of one standard-deviation in HHI for hospitals resulted in a four percent increase in hospital prices and six percent increase in payer expenses even though there was no significant change in the number of admissions.

 

On Aug. 5, 2015, the American Hospital Association submitted a letter and detailed analysis to the DOJ’s department of antitrust regarding the insurance plan mergers noted above.  Their analysis shows the Anthem-Cigna merger alone would impact 817 geographic markets.  Of those markets, 600 - serving 45 million patients - would experience an increase in the HHI to 2,500, meaning it was likely to enhance market power.  This increase in dominance would result in loss of competition to control price increases and make the barrier to entry for new vendors in the market quite difficult.  In other words, it would thwart choice for the consumer.


The other trend to watch is growing privatization of our governmental programs – Medicare and Medicaid.  Medicare Advantage enrollment has increased by 50 percent since the ACA was enacted and now represents nearly one-third of total Medicare beneficiaries and growing.  With around 17 million Americans being cared for under a Medicare Advantage plan, federal payments to these private carriers is expected to run around $155 billion in 2015.  Two of the largest players in this space are Humana and UnitedHealth Group, the latter doing business as UnitedHealthcare. 

 

On the Medicaid side, Kaiser Family Foundation (KFF) reports that over half of the beneficiaries nationwide are receiving care delivered by a risk-based managed care organization (MCO) – privatized Medicaid.  KFF further notes that coming into January 2015, 38 states and DC were leveraging Medicaid MCO contracts, which represents over 90 percent of all Medicaid enrollees.  Medicaid MCOs have increased by almost 20 percent since ACA was signed, according to a report by Milliman, from 150 in 2010 to 182 in 2014. 

 

The most prevalent form of MCO contracting is the comprehensive risk-based managed care.  Under this model, organizations contract with the state under a capitation rate on behalf of each enrolled beneficiary for services including acute care and, in some instances, long-term care.  Even though Medicaid revenues to these MCOs nearly doubled from $54.6 billion to $110.6 billion from 2010 to 2014, Milliman notes that 71 MCOs lost money in 2014.  For NWRPCA states (Region X), the report shows the following MCO performance:


State

MCO

Non-Profit or For-Profit

Gain or Loss

Oregon

Providence Health Assurance

Non-Profit

Gain

Trillium Community Health Plan

For-Profit

Gain

Washington

Columbia United Providers

For-Profit

Loss

Community Health Plan of WA

Non-Profit

Loss

Coordinated Care Corp.

For-Profit

Loss

Molina Healthcare of WA

For-Profit

Loss

UnitedHealthcare of WA

For-Profit

Loss

 

Be aware that in early June, CMS released a proposed rule that establishes new requirements for states and MCOs under healthcare reform.  If finalized, this rule would introduce more regulatory oversight while providing states with greater discretion in benefit design and MCO contracting.  The rule attempts to reconcile managed Medicaid with recommendations made by the HHS Office of Inspector General (OIG) and the Government Accountability Office (GAO).  This is an important rule to watch inasmuch as it aligns Medicaid with other federally-regulated, privatized programs and may directly impact the patients you serve.  A good summary of the proposed provisions can be found at Health Affairs.

 

In summary, experts predict these trends to continue as the U.S. seeks new and innovative ways to cover beneficiaries, deliver care and engage patients.  This means community health centers will need to continue monitoring activities in their local markets and encourage the plans in their area to work in collaboration to structure benefits that help patients, minimize disruption to the provider-patient relationship and assist in common goals such.

 

Thank you for your question! 


Do you have a question?  Let us know!  Contact membership@nwrpca.org to submit your questions to “Ask Adele.”


NWRPCA welcomes and regularly publishes white papers and articles submitted by members, partners and associates with subject matter expertise. The appearance of any guest publication in our Health Center News database represents the views of the author and does not constitute endorsement by NWRPCA of the stated opinions or perspectives, nor does it suggest endorsement of the contributor's products or services.

[1] Cavanaugh, Centers for Medicare and Medicaid Services, The CMS Blog, ACOs Moving Ahead, Dec. 22, 2014. (Updated with Leavitt Partners data obtained at HIMSS15)




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