- Disruptive growth strategies among health insurers threaten the future margins and volumes of nonprofit hospitals, a new Moody’s Investor Services report maintains.
- Vertical integrations — such as the proposed CVS Health-Aetna merger and UnitedHealth/Optum-DaVita deal — put insurers “in direct competition” with hospitals for outpatient volume and revenue and could allow payers to carve out hospitals or specific services from their contracts, according to the report.
- Moody’s warns that the embrace of value-based payment models by insurers is also a threat, as it shifts patients from high-cost inpatient care to cheaper outpatient settings.
Hospitals are already feeling the squeeze from cuts in Medicare reimbursements, which are driving patients with less serious ailments to urgent care and other outpatient treatment facilities. Depressed patient admissions and payments have providers searching for cost savings. The result has been a near constant stream of divestitures, mergers and layoffs that shows no signs of abating. At the same time, hospitals have been acquiring physician practice and outpatient care sites to diversify their revenue streams as demand shifts.
Those efforts could be undermined as insurers move into the provider space by buying up professional practices, for example.
“As the insurer owns more non-acute healthcare providers — particularly physician groups — it would be better able to carve out hospitals or certain services from its contracts, which would translate into lower volume and revenue for hospitals,” the report said.
Vertically integrated private payers will cut into hospital revenues by offering similar outpatient and post-acute care to members at lower costs than hospitals can afford, Moody’s says. With enough integration, they could siphon more patients and revenue from struggling hospitals.
Optum’s physician acquisitions and similar deals will also cut into hospitals’ referral volumes. “The acquisition of relatively large physician groups is noteworthy because these providers are the key decision makers in determining what type of treatment the patient will receive and where the care is provided,” the report said.
Increasing scale fueled by more Medicare and Medicaid managed care members, coupled with market concentration, will also give insurers the edge in price negotiations, according to the report. Meanwhile, reduced government payments will make hospitals more dependent on private insurance to cover their costs.
“Insurers flexing their negotiating power by offering lower rate increases will likely result in more standoffs and terminations of contracts between insurers and hospitals,” Diana Lee, a vice president at Moody’s, said in the report. “To gain leverage, we expect hospitals to continue M&A and consolidation.”