By DeJeune O'Garro • April 28, 2019•Writers in Residence, Issues, Other Issues
In recent years, the U.S. has seen an increase in hospital mergers and acquisitions and in hospitals acquiring physician groups. This wave of provider consolidation led to measurable operational efficiencies but has possibly exacerbated the preexisting lack of access to care and removed incentives on providers to decrease the cost of care. Through it all, patients are caught in the cross-fire without much say in the matter. Fortunately, a few non-traditional health care entities are bringing care closer to the patient, and giving more traditional health care providers a run for their money.
The number of hospital mergers and acquisitions (M&A) have increased in recent years. Hospital M&A rates more than doubled since the mid to late 2000s. The value of these deals and revenue size of the acquired hospitals have increased as well, and not only are hospitals acquiring and merging with other hospitals but hospitals are now acquiring physician groups at history-making rates (collectively, “provider consolidation”).
As a slight aside, regarding hospitals acquiring physician groups, unbeknownst to many patients, most physicians, including those who provide care in hospital settings, are employed by a physician group and not the hospital itself. This difference may impact the provider’s patient-facing policies, including length of appointments, office hours, and access to the latest devices, procedures, and training. All in all, it is probably too early to tell how the uptick provider consolidation and the shift toward hospital-employed physicians will change patient care and policies in aggregate, but some studies say quality of care has not declined. It’s just not clear that quality of care has improved, which nearly every M&A announcement cites as a goal or outcome.
Nonetheless, there are some clear reasons why providers consolidate. Hospitals and other health care providers have long been challenged to achieve and maintain profitability in a high fixed cost, high-risk, heavily regulated business. Many providers operate on very low margins, and recently, external factors have intensified the pressure to pursue M&A for growth (and, in some cases, survival). Some of the top reasons providers consolidate are as follows.
- As payors (insurance companies) consolidate, health care providers seek to improve their bargaining position for reimbursement and payment by increasing in size and scale.
- In a competitive market with a national physician shortage, providers seek to recruit and retain top talent by offering better benefits, facilities, research and growth opportunities, etc., which in turn requires additional resources and scale beyond those currently available at some individual institutions.
- For smaller providers and those that want to be/remain competitive in the digital age, consolidation improves their ability to invest in and update outdated technology.
- Finally, health care regulation shifts in recent years have caused providers to seek to better position themselves for value-based contracts and capture more of the patient’s care continuum (i.e., provide all of a patient’s medical needs end-to-end).
While each of these consolidation drivers could have positive spillover effects for patient care, they are not wholly patient-centric, and patients effectively have no say in the matter. To some extent this makes sense. No company is completely beholden to its customers. However, health care is a unique industry. In health care, the end user (i.e., the beneficiary of the services provided) is not necessarily the party who pays for the care (the "payer"). Thus, health care providers must "cater to" and consider both insurers and patients, who respectively have quite different amounts of influence and information. Furthermore, as members of a profession, health care providers, like attorneys, have expertise that the general population cannot readily obtain. This gap in expertise and information creates a dependency on and trust in providers to act in the best interest of patients with little to no patient input. The information gap between providers and patients creates a market inefficiency.
The Bright Side
It is unlikely the information gap between providers and patients will ever close or that patients can change the trends in provider consolidation, but provider consolidation mirrors historical patterns (or better yet cycles) of integration and modularity in other industries, which means the industry will become more fragmented, bringing care closer to more patients.
How modularity works. As the health care industry matures, it, like other industries, has become increasingly integrated (both vertically and horizontally). As a result, patients have less flexibility in seeking care and less provider choice, and prices are arguably higher with less competition. Fortunately, when an industry or sector becomes heavily integrated, new entrants (including existing entities expanding their offerings into nontraditional markets) begin to "pick the low hanging fruit" and offer certain products or services also offered by these integrated players. These new entrants can compete using a modified metric of performance (i.e., their report card simply has fewer subjects for grading). They can specialize and provide better service and more flesibility to patients. They also tend to have better economics, such as lower overhead and lower fixed costs. They do less for less.
How providers respond. Many providers don't respond to new entrants making the industry more modular while some are aware of the effects of integration and decide to divest less profitable health care services. However, divestiture may be less than ideal given many divested businesses continue to operate with legacy baggage and without the support mechanisms they once had. It's unclear whether, over time, divested health care services will continue as standalone or smaller businesses. If the services are sold to (or later acquired by) other larger providers, patients will not see much change by way of provider experience, access, and costs. Also, in the context of our nation’s physician shortage, one can only hope that divestitures don’t exacerbate certain populations’ lack of access to care. This is especially concerning when pediatrics, obstetrics, and mental health are typically among the least profitable health care services. Our children, women’s health, and mental health are equally as important to the health and future of our nation as any other area of health care.
What's next. New entrants (and newly divested service lines) should be able to innovate in ways larger systems cannot. CVS Health famously started its minute clinic, which, unlike most physician offices, is open seven days a week and offers walk-in appointments. CVS Health also recently announced that it will dedicate more space to health services in what it calls a HealthHUB. Other retailers are following suit. Kroger announced it will pursue health care opportunities. Also, there are new channels for care using existing health professionals. Many providers are hiring more nurse practitioners and physicians assistants to see patients and offering a quick care clinic for a subset of services, and pharmacists can now administer immunizations. The burgeoning modularity we’re seeing in response to provider consolidation will likely increase in the near future, giving patients more convenient, low-cost options to see a clinican.
What you can do. To start, you can:
- Research your health care provider. In the age of Amazon reviews, big data, social media recommendations, and Yelp, it can be stupefyingly difficult to research health care providers and to understand what constitutes a quality physician, and medicine is highly personal and subjective. There are online aggregators that function much like yelp for physians, and a little more in-depth research can go a long way. For example, if you are expecting a child, it can be helpful to understand an obstetrician’s primary cesarean rate, whether the doctor frequently serves same-sex couples (or accommodates your religious beliefs), whether the doctor and the hospital with which the doctor is affiliated are open to the use of doulas, comforts from home, and anything that may be important to you. If you are having surgery, it may be helpful to understand a surgeon’s, the department’s, and/or the hospital’s postoperative readmission rate.
- Look for non-traditional health care entities near you. Forget week-long lead times for appointments and looking for physicians who are taking new patients. You now have several of your health care needs met at your convenience in locations much closer to home. For example, see your local pharmacist for vaccinations and immunizations. Get a same-day, quick care appointmentsfor minor illnesses (think ear infections, colds, etc.) at a minute clinic or local retail store, such as CVS Health or Walgreens. Also, many insurance plans cover telemedicine, so you can see a medical professional with just a few clicks on your favorite handheld device.
And for more information on provider consolidation, see: