Consolidation’s Impact on Quality Analyzed

As for how these and other mergers might impact pay models that have begun shifting away from fee-for-service (FFS) to pay-for-performance (P4P), one expert thinks that the focus on quality is driving the need for consolidation.

“When organizations start paying for quality, what they are actually doing is creating virtual managed care organizations,” Anthony Morreale, PharmD, assistant chief consultant for clinical pharmacy services and health services research, Department of Veterans Affairs, told FRMC. “The Affordable Care Act is pushing organizations to network. It is telling them, ‘We are no longer going to let you be a standalone and make a lot of money’ [for lesser quality outcomes],” he explained. One way to build networks is to acquire competitors. “It’s easier to get everyone to play nice in the sandbox if you own them.”

Dr Morreale said this dynamic extends beyond big insurers to health plans such as Kaiser and even retail pharmacies. “Mini-clinics are popping up all over the place. Will bigger entities try to buy them?” CVS’s $1.9 billion acquisition of Target’s clinic business is one such example. Though dollar-wise it pales in comparison to the bigger insurance plays, it points to the coming trend.

Arthur F. Shinn, PharmD, president of Managed Pharmacy Consultants, LLC, notes that the larger entities that come out of consolidation will be in a position to demand quality care and base reimbursement on that. “But what will happen to the dollars gained from such efficiencies?” asked Dr Shinn.“Will they be passed onto members or pocketed as profit?”

Straddling Fee-for-Service and Pay-for-Performance

The answer is the latter, believes Jennifer Christian, MD, chair, work fitness and disability section, American College of Occupational and Environmental Medicine. “I think part of our problem is that both insurance companies and providers pay themselves out of the revenue they get to care for patients. That’s why performance metrics are so critically important as safeguards.”

“The problem,” she continued, “is that health care delivery organizations are still too pre-occupied with getting themselves organized administratively and economically to focus much attention on actually changing the way care is delivered and improving the population’s health and outcomes of care.”

“Insurers and big providers are strad- dling [FFS and P4P] pay models—and they’re skirmishing primarily on metrics and economic issues,” explained Dr Christian, who is also president of Webility Corp. “I am not sure how much actual progress can be made to transform care delivery and actually improve episode outcomes in that kind of environment.”

She said today’s evolving market reminds her of the early 1990s, when true capitation was in vogue. “A California colleague told me of a practice that had patient charts identified by blue and red dots to distinguish the capitated from FFS patients,” she said, the implication being that the physician’s approach to the plan of care was being influenced by the payment arrangements.

True advancements in quality improvement will probably require more radical changes in the system, noted Dr Chris- tian. She explained that in New Zealand, where the government contracts with local health organizations for primary care, providers have a budget to spend on patients–kept separate from their own salaries/income. The primary care delivery organization does not get to use unspent clinical money to pay itself. “The budget that pays the provider is separate from the budget that takes care of the patient,” she said. “I find that quite remarkable.”

While the US is unlikely to adopt that kind of system, she believes that the 2 bucket concept, or something similar, would help move the quality care needle more rapidly. “It would garner trust and make negotiations easier if stakeholders knew that unspent money was going to go into a charity fund, back to the taxpayers, or count toward a premium rebate,” noted Dr Christian.

A Living Laboratory

Gary Owens, MD, president of Gary Owens Associates, a medical management and pharmaceutical consultancy firm, agrees that the quality care movement in the US is at an immature stage. “Right now it is a living laboratory that I think will go through many more iterations,” he explained. Consolidation may help bring things along more quickly. “Bigger organizations have more dollars to allocate to a payment methodology. If that doesn’t work, they can try another.”

Insurers with more heft will be in the driver’s seat, added Dr Owens. “If a big payer wants to change its approach to cancer care, can providers afford to say no? With consolidation, insurers are gaining leverage that will enable them to drive change faster.”

But for some, it may not be that easy, noted Charles Karnack, PharmD, a faculty member at Duquesne University’s Rangos School of Health Sciences. “Some hospitals are barely hanging on, and oth- ers are going out of business. Those in the red cannot afford to produce good quality metrics.”

Regional Dynamics and the Developing Market Structure

How will consolidation affect smaller and regional players, as well as specific geographic regions? To get a glimpse, Dr Karnack suggests looking to areas where current competition is light. Take West Virginia, where Highmark BCBS controls 75% of the market. The insurer also has a presence in Pennsylvania, but does not have as high of a market penetration.

“The same exact plan from Highmark is $200 to $300 more per month in West Virginia,” he explained. “They have a corner on the market, and charge what they want. You might see more of the same thing as big insurers join forces.”

In a capitalistic market, the bigger swallowing the smaller is inevitable, added Dr Morreale. “Smaller players will continue to be snatched up when the bigger guys think it makes sense to do so. Even if they don’t buy smaller entities outright, they can have a stake.”

And the trend is not just limited to insurers. “If you’re a health system like Sharp or Scripps, how do you grab more market share in San Diego?” he asked. “You buy practices. And you get so big that payers are compelled to get bigger too. I think this is the beginning of the creation of an oligopoly. Ten years from now you’re going to have just a few gi- ants dominating the market.”

More Health Care Bang for Fewer Bucks

Norm Smith, president of Viewpoint Consulting, Inc., which surveys managed markets decision-makers for the pharmaceutical industry, said that even in the face of powerful national players, certain regional entities will survive. “Those who are aligned with larger provider hospitals with wider networks will do just fine,” he said. “Look at the regional Blues plans [that are indepen- dent of Anthem]. Not many people will move from them to national players.”

As for the fate of regional health systems, Dr Owens used the automotive industry as an example. Just as small to midsized carmakers operate successfully amongst behemoths like GM and Ford, so do organizations such as Intermountain Health Care, Sutter Health, and Geisinger Health System.

In the end, Mr Smith hopes that continued consolidation will result in improved communication, which will hopefully translate to more efficiencies.

To facilitate the effort on the provider/ health system side, Dr Christian believes that getting the right people in the right positions is crucial. “I suggest looking for physicians with an MPH degree and population health skills.

She also suggested looking for professionals with medical leadership experience in the military, the VA, companies that run employers’ onsite clinics, and public health sector facilities.

“Try to recruit professionals with experience running programs to deliver care to an entire population—who are accustomed to being held accountable for keeping total costs low, within a budget, or producing specific health outcomes,” continued Dr Christian.

“Learn how they think and what they do. They are familiar with working with finite budgets and limited resources, so they have the skills required to deliver the most health care bang for the least buck.”—Dean Celia