Cost-sharing is the practice of making individuals responsible for part of their health insurance costs beyond the monthly premiums they pay for health insurance – think things like deductibles and copayments. The practice is meant to inspire more thoughtful choices among consumers when it comes to healthcare decisions. However, the choices it inspires can often be more harmful than good.
We recently shared an updated perspective on the independent physician landscape. Notably absent from this map, but an important player in this space, are entities, like health plans, private equity, and health systems, who partially or wholly fund some independent physician groups.
We intentionally left these funders off the map because they don’t work in a uniform way with all physician groups. The reality is that funders have their handprints all over this map—and just knowing what type of funder you’re working with doesn’t necessarily tell you how they work with physician groups.
Funders work across the physician landscape because they recognize two things:
- First, in order to play in today’s physician market, funders need to be flexible in how they work with physicians in order to appeal to the wide variety of groups and build a bigger market presence.
- Second, building or buying these physician group archetypes outright is not the only way to work with them. Many funders instead opt to invest in them—either through dollars or resources.
Key funders to watch
There are three key funders we track the closest: private equity, health plans, and health systems. Below are brief overviews of how they commonly work with independent groups and our predictions for where you might see them go next.
Private equity (PE): Consistent approach with still to be proven outcomes
The goal of PE firms is to make money on their investments. To do this, these firms buy shares of practices in order to have partial ownership. In return, physician groups get the capital they need to make investments—investments that in theory drive profits for both the physician shareholders and the PE investors. Unlike other funders, PE is rarely associated with full acquisition.
Two of the places we’ve seen the most private equity investment are in consolidation of specialty practices (usually at the national level) or value-based care investments in primary care practices (across all archetypes).
Private equity is gaining traction as a physician group partner because they often try to preserve some degree of physician autonomy and they’ve learned to nuance their investments and pitches based on the group they’re seeking to work with.
We predict: PE will continue to back the full range of archetypes on this map—investing in both independent groups directly and the national archetypes.
What we’ll be watching:
- What will happen to the handful of major PE investments in the independent physician group space that will be reaching their 5-7 year mark
- What level of physician autonomy will PE firms continue to preserve as PE gains stronger footholds in the physician landscape
Health plans: The most eager to transform (incrementally)
Health plans are often predominantly associated with a single physician archetype for a given plan. For example, when you think about UnitedHealthcare, you might think of their sister company, OptumCare, and an aggregation strategy. Or, you might think of Blues plans most commonly as service partners.
However, when you dig deeper, the story is much more nuanced. Plans and their parent companies like UnitedHealth Group do often aggregate practices, but they also sell and integrate services via service partner models. And several Blues plans are now building practices from the ground up. To top it off, some plans are even adopting an investment strategy like Anthem with Privia.
Perhaps more than any other funder, health plans often adopt a range of strategies to develop their physician strategy and maintain their existing networks. And even cases where plans aren’t funding entities themselves, they’re thinking of new ways to work with the growing range of physician groups.
We predict: Health plans will move away from a uniform approach to physician practice partnership and towards more multifaceted approaches to appeal to a wide range of providers.
What we’ll be watching:
- Will health plans diversify their suite of approaches based on the groups they’re pursuing
- Will health plans tailor their value proposition for each partnership approach
Health systems: Playing catch up to evolve
We often tend to think about health systems as aggregators—they buy independent physician groups and add them to their employed medical groups. But we’re seeing two physician market shifts that are causing health systems to move away from a one-size-fits-all approach.
One, the remaining independent groups are growing in size and, two, they are less willing to be acquired. On top of that, as private equity firms and payers continue to diversify their strategies, health systems must adapt to keep pace—or risk being seen as the least attractive partner.
As a result, more health systems are telling us about their new approaches to physician partnerships, like starting an MSO to act as a service partner or convening coalitions between themselves and independent groups.
We predict: Health systems will face increasing pressure to diversify how they are operating with physician groups. Similar to health plans, we expect to see a pivot away from an aggregation-only approach. To learn more, read our take on how health systems and independent groups should think about partnership.
What we’ll be watching:
- How quickly will health systems stand up additional partnership approaches
- Will health systems in markets where they’re the dominant partner proactively adjust their partnership approach versus wait for the market to shift first
Your checklist to work successfully with today’s physician groups
As you evaluate your partnership strategy, here’s our starter list of questions to ask yourself:
- Clarify your partnership goals:
- What are my organization’s goals for physician partnership broadly?
- What are the archetypes I currently fund or partner with?
- Do these archetypes serve my organization’s stated goals?
- Identify the right partnership approaches for your organization
- What new archetypes should I build or work with to advance my organization’s goals and target new physician groups?
- Do I need to build this archetype myself or is it better to fund one that exists?
- If funding, should I wholly own or invest in the archetype?
- Define your value proposition to physicians
- Have I adjusted my value proposition for each of the archetypes I fund or partner with?
- Am I clearly articulating my value proposition in a way that speaks to physicians’ needs and wants?
- Does my value proposition align with what I’m actually delivering? For example, if I say I’m preserving autonomy, how am I doing that?
- How does my value proposition compare and compete with others in the market?
- Map out the power dynamics of the archetypes you want to work with
- Who has the ultimate decision-making power in the organization? (Hint: Decision-making power gets more diffuse as you move from right to left, national chain to service partner.)
- Who are the key stakeholders who influence decision-making?
About 73% of health insurance markets are highly concentrated, and in 46% of markets, one insurer had a share of 50% or more, a new report from the American Medical Association shows. The report comes a few months after President Joe Biden directed federal agencies to ramp up oversight of healthcare consolidation.
The majority of health insurance markets in the U.S. are highly concentrated, curbing competition, according to a report released by the American Medical Association.
For the report, researchers reviewed market share and market concentration data for the 50 states and District of Columbia, and each of the 384 metropolitan statistical areas in the country.
They found that 73% of the metropolitan statistical area-level payer markets were highly concentrated in 2020. In 91% of markets, at least one insurer had a market share of 30%, and in 46% of markets, one insurer had a share of 50% or more.
Further, the share of markets that are highly concentrated rose from 71% in 2014 to 73% last year. Of those markets that were not highly concentrated in 2014, 26% experienced an increase large enough to enter the category by 2020.
In terms of national-level market shares of the 10 largest U.S. health insurers, UnitedHealth Group comes out on top with the largest market share in both 2014 and 2020, reporting 16% and 15% market share, respectively. Anthem comes in second with shares of 13% in 2014 and 12% in 2020.
But the picture looks different when it comes to the market share of health insurers participating in the Affordable Care Act individual exchanges. In 2014, Anthem held the largest market share among the top 10 insurers on the exchanges, with a share of 14%. By 2020, Centene had taken the top spot, with a share of 18%, while Anthem had slipped to fifth place, with a share of just 4%.
Another key entrant into the top 10 list in 2020 was insurance technology company Oscar Health, with 3% of the market share in the exchanges at the national level.
“These [concentrated] markets are ripe for the exercise of health insurer market power, which harms consumers and providers of care,” the report authors wrote. “Our findings should prompt federal and state antitrust authorities to vigorously examine the competitive effects of proposed mergers involving health insurers.”
The payer industry hit back. In a statement provided to MedCity News, America’s Health Insurance Plans, a national payer association, said that Americans have many affordable choices for their coverage, pointing to the fact that CMS announced average premiums for Medicare Advantage plans will drop to $19 per month in 2022 from $21.22 this year.
“Health insurance providers are an advocate for Americans, fighting for lower prices and more choices for them,” said Kristine Grow, senior vice president of communications at America’s Health Insurance Plans, in an email. “We negotiate lower prices with doctors, hospitals and drug companies, and consumers benefit from lower premiums as a result.”
Further, the report does not mention the provider consolidation that also contributes to higher healthcare prices. Mergers and acquisitions among hospitals and health systems have continued steadily over the past decade, remaining relatively impervious to even the Covid-19 pandemic.
Scrutiny around consolidation in the healthcare industry may grow. In July, President Joe Biden issued an executive order urging federal agencies to review and revise their merger guidelines through the lens of preventing patient harm.
The Federal Trade Commission has already said that healthcare businesses will be one of its priority targets for antitrust enforcement actions.
On Thursday the Department of Health and Human Services (HHS), along with other federal agencies, released the long-awaited second half of its proposed regulations implementing the No Surprises Act, passed by Congress at the end of last year, which bans “surprise billing” of patients who unsuspectingly receive care from out-of-network providers.
The interim final rule, which will take effect on January 1st after a comment and review period, lays out a process for addressing disputed patient bills, first through a 30-day “open negotiation” between the patient’s insurer and the out-of-network provider, and then through a federally-managed arbitration process.
Of most interest to insurers and providers who have lobbied fiercely for months to ensure a favorable interpretation of the law, the new regulation specifies that the outsider arbitrator, to be agreed upon by both parties, must begin with the presumption that the median in-network rate for services in the local market is the correct one. The arbitrator can then modify that price based on the specific circumstances of the case.
That method was broadly favored by insurers, and AHIP strongly endorsed the proposed approach, saying in a press release that “this is the right approach to encourage hospitals, healthcare providers, and health insurance providers to work together and negotiate in good faith.” Predictably, the hospital lobby felt otherwise; the American Hospital Association reacted by calling the rule “a windfall for insurers”, saying that it “unfairly favors insurers to the detriment of hospitals and physicians who actually care for patients.”
The ultimate winners here are patients, who will gain important new protections against the potentially crippling financial implications of surprise billing. We’d agree with HHS Secretary Xavier Becerra, who told the New York Times that the new rule would “[take] patients out of the middle of the food fight,” and provide “a clear road map on how you can resolve that food fight between the provider and the insurer.” It’s about time.
Still unresolved: the high cost of out-of-network ambulance services, left out of the No Surprises Act altogether. Let’s hope Congress circles back to address that issue soon.
Prime Healthcare’s New Jersey hospitals announced this week they would terminate their contracts with major insurer UnitedHealthcare, citing significant underpayment compared to the rates of neighboring facilities, and lower reimbursement rates than those offered by Medicaid.
The decision impacts Saint Clare’s Health in Denville, Dover and Boonton, Saint Michael’s Medical Center in Newark, and Saint Mary’s General Hospital in Passaic.
Dr. Sonia Mehta, regional CEO and chief medical officer of Prime Healthcare New Jersey, said in a statement that the hospitals have been underpaid for years, including some rates well below that of Medicaid, and added that UnitedHealthcare’s contract proposal jeopardizes the organization’s ability to deliver quality care.
WHAT’S THE IMPACT?
Due to new disclosure requirements by the Centers for Medicare and Medicaid Services, all hospitals must now disclose their contracted rates. Prime Healthcare said it learned it had been underpaid compared to what United has been paying neighboring hospitals.
The New Jersey Hospital Association reported that Prime Healthcare hospitals provide quality healthcare services and that its cost of care is among the lowest in the State of New Jersey.
“We are patient-focused and are committed to delivering the most compassionate care by exceptional physicians using state-of-the-art technology,” said Mehta. “Undercutting our payments is unacceptable, and so we are taking the necessary step of providing notice of our intent to provide care out-of-network. We realize it is a bold move, but a necessary one to separate our hospitals from organizations that work contrary to our mission and commitment to our patients.”
Prime’s New Jersey hospitals will continue to honor the rates and services in the agreements until the end of the cooling off period, which is December 16 for the Medicaid product and December 31 for the commercial and Medicare products.
All patients can continue to use Prime’s emergency services at its New Jersey hospitals, regardless of insurance, and the hospitals are willing to negotiate single patient agreements for elective services. The hospitals will also honor all continuity of care services for United members.
UnitedHealthcare told Healthcare Finance News that Prime’s demands are unreasonable.
“Prime is demanding a 14% price hike in just one year for our employer-sponsored and individual plans, which is unsustainable and would increase healthcare costs for New Jersey residents and employers,” said spokesperson Cole Manbeck. “We hope Prime will work with us to ensure the people we serve have continued access to Prime’s hospitals at an affordable cost.
“While we have agreement on rates for our Medicare Advantage and Medicaid plans and proposed to Prime that we finalize the contract for these plans, Prime refused unless we accepted its 14% price hike demands for our employer-sponsored and individual plans,” he said.
“This unnecessarily puts thousands of New Jersey residents in the middle of our negotiation, presumably because Prime hopes the potential disruption in care for our most vulnerable members would pressure us to give in to its price hike demands.”
THE LARGER TREND
Prime Healthcare New Jersey is part of Prime Healthcare, a health system operating 45 hospitals and more than 300 outpatient locations in 14 states. In 2020, Prime successfully completed its acquisition of St. Francis Medical Center, a 384-bed Los Angeles County medical facility that had previously been owned by Verity Health.
Prime acquired St. Francis for a net of more than $350 million, including a $200 million base cash price and $60 million for accounts receivable.
Just last week, CMS blocked four Medicare Advantage plans from enrolling new members in 2022 because they didn’t spend the minimum threshold on medical benefits, with three UnitedHealthcare plans and one Anthem plan failing to hit the required 85% mark three years in a row. Medicare Advantage plans are required to spend a minimum of 85% of premium dollars on medical expenses; failure to do so for three consecutive years triggers the sanctions.
In June, UnitedHealthcare backtracked on a proposed policy retroactively rejecting emergency department claims. The policy, which was slated to take effect on July 1, meant UHC would evaluate ED claims to determine if the visits were truly necessary for commercially insured members. Claims deemed non-emergent would have been subject to “no coverage or limited coverage,” according to the insurer.
UHC rolled back the policy – for now. The insurer told The New York Times that the policy would be stalled until the end of the ongoing COVID-19 pandemic, whenever that might be.
The pharmaceutical industry is on the verge of defeating a major Democratic proposal that would allow the federal government to negotiate drug prices.
Speaker Nancy Pelosi (D-Calif.) can afford only three defections when the House votes on a sweeping $3.5 trillion spending package, but Reps. Scott Peters (D-Calif.), Kurt Schrader (D-Ore.) and Kathleen Rice (D-N.Y.) last week voted to block the drug pricing bill from advancing out of the Energy and Commerce Committee. Rep. Stephanie Murphy (D-Fla.) voted against advancing the tax portion of the legislation in the House Ways and Means Committee.
All told, the number of House Democrats who have concerns about the drug pricing bill is in the double digits, and several Democrats in the 50-50 Senate would not vote for the measure in its current form, according to industry lobbyists.
The holdouts mark a sharp contrast to just two years ago, when every House Democrat voted for the same drug pricing bill, underscoring the inroads pharmaceutical manufacturers have made with the caucus on a measure that would narrow corporate profit margins.
“The House markups on health care demonstrate there are real concerns with Speaker Pelosi’s extreme drug pricing plan and those concerns are shared by thoughtful lawmakers on both sides of the aisle,” the Pharmaceutical Research and Manufacturers of America (PhRMA), the industry’s top trade group, said in a statement following the committee votes.
The reversal follows the industry’s multimillion-dollar ad campaigns opposing the bill, timely political donations and an extensive lobbying effort stressing drugmakers’ success in swiftly developing lifesaving COVID-19 vaccines.
The bill at the center of the fight, H.R. 3, would allow Medicare to negotiate the price of prescription drugs by tying them to the lower prices paid by other high-income countries. The measure is projected to free up around $700 billion through the money it saves on drug purchases — covering a big chunk of the Democrats’ $3.5 trillion spending plan.
Drugmakers say the measure would reduce innovation, pointing to a Congressional Budget Office estimate that found it would lead to nearly 60 fewer new drugs over the next three decades.
Peters and other Democrats have proposed an alternative bill that would limit price negotiation to a fraction of the prescription drugs included in H.R. 3, focusing instead on drugs like insulin, the diabetes treatment that has seen its price rise dramatically over the last decade. The alternative measure also would set a yearly out-of-pocket spending limit for lower-income Medicare recipients.
The proposal foreshadows a less aggressive drug pricing compromise that uneasy Senate Democrats are more likely to get behind.
“You’re going to see something pass, but it probably won’t be H.R. 3,” said a lobbyist who represents pharmaceutical companies.
Pharmaceutical manufacturers oppose any efforts to control the price of prescription drugs, but the alternative bill is more favorable to the industry than the broader Democratic bill.
“Any kind of artificial price controls will have an impact on both new scientific investment as well as access to medicines,” said Rich Masters, chief public affairs and advocacy officer at the Biotechnology Innovation Organization, a trade group that represents pharmaceutical giants such as Sanofi, Merck and Johnson & Johnson.
“We appreciate the focus on patient out of pocket costs, which we know is a critical component to any reform efforts and something that BIO and our member companies have long supported,” he added.
Progressive lawmakers, who have long bemoaned rising drug prices, blasted the three House Democrats who voted to block H.R. 3, saying they succumbed to industry donations and lobbying efforts.
“What the pharmaceutical industry has done, year after year, is pour huge amounts of money into lobbying and campaign contributions … the result is that they can raise their prices to any level they want,” Sen. Bernie Sanders (I-Vt.) said in a video message Friday.
The pharmaceutical industry spent $171 million on lobbying through the first half of the year, more than any other industry, to deploy nearly 1,500 lobbyists, according to money-in-politics watchdog OpenSecrets. That’s up from around $160 million at the same point last year, when the industry broke its own lobbying spending record.
Peters announced his opposition to Pelosi’s drug pricing proposal in May and shortly after was showered with donations from pharmaceutical industry executives and lobbyists, STAT News reported.
Peters is the No. 1 House recipient of pharmaceutical industry donations this year, bringing in $88,550 from pharmaceutical executives and PACs, according to OpenSecrets. Over his congressional career, Peters has received in excess of $860,000 from drugmakers, more than any other private industry.
The California Democrat told The Hill last week that accusations of his vote being guided by donations are “flat wrong” and noted that his San Diego congressional district employs roughly 27,000 pharmaceutical industry workers consisting mostly of researchers.
“It’s always going to be the attack because it’s simple and it’s easier than engaging on the merits,” he said.
Schrader received nearly $615,000 from the industry. He inherited a fortune from his grandfather, a former top executive at Pfizer, and had between $50,000 and $100,000 invested in Pfizer, in addition to other pharmaceutical holdings as of last year, according to his most recent annual financial disclosure.
Schrader tweeted last week that he is “committed to lowering prescription drug costs,” while arguing that the House bill would not pass the Senate in its current form.
Rep. Lou Correa (D-Calif.) another supporter of Peters’s more industry friendly bill, received an influx of pharmaceutical donations in recent months, including a $2,000 check from Pfizer’s PAC in mid-August, according to Federal Election Commission filings.
In meetings with lawmakers, lobbyists have argued that now is not the time to go after drugmakers, which developed highly effective COVID-19 vaccines and are developing booster shots and other treatments to fight the virus.
The U.S. Chamber of Commerce, which represents several major pharmaceutical manufacturers, said last month that Democratic drug pricing efforts will leave the U.S. “unprepared for the next public health crisis.”
PhRMA last week launched a seven-figure ad campaign to oppose H.R. 3. That’s after pharmaceutical groups and conservative organizations bankrolled by drugmakers spent $18 million on ads attacking the proposal through late August, according to an analysis from Patients for Affordable Drugs, a group that launched its own ads backing H.R. 3 last week.
The ad buys are meant to sway both lawmakers and the general public. A June Kaiser Family Foundation poll found that 90 percent of Americans approve of the drug pricing measure, but that support dropped to 32 percent when they were told that the proposal “could lead to less research and development of new drugs.”
- As some employers look to contract directly with hospitals in an effort to lower healthcare costs, researchers found that large self-insured employers likely do not have enough market power to extract lower prices, according to a study published in The American Journal of Managed Care.
- The study examined the relationship between employer market power and hospital prices every year between 2010 and 2016 in the nation’s 10 most concentrated labor markets.
- The study found that hospital market power far outweighs employer market power, suggesting employers will not be successful in lowering prices alone, but may want to consider forging purchase alliances with local government employee groups, the research paper said.
In recent years, some larger employers have cut out the middlemen to strike deals directly with hospitals.
Perhaps most notably, J.P. Morgan, Amazon and Berkshire Hathaway joined forces to bend the cost of care in the U.S. Despite all the fanfare, the venture, named Haven, later fell apart, illustrating how difficult it is to change the nation’s healthcare system.
By circumventing traditional health insurers, companies are hoping they themselves can negotiate better deals.
But this latest study throws cold water on that strategy, at least in part. “Our study suggests that almost all employers, operating alone, simply do not have the market power to impose a threat of effective negotiation,” the paper found.
One of the paper’s main aims is to measure market power of hospitals and employers, and the results are striking. The average hospital market power far exceeds that of the employer in the 10 metropolitan areas researchers examined.
The average hospital market power was more than 80 times greater than that of the employer, putting into context just how askew the power dynamics are.
These employers are not wrong for wanting to strike out on their own, the researchers point out.
Many self-insured employers bear the insurance risk while entering into administrative services only arrangements with insurers which provide just that, administrative type services.
But insurers in these arrangements may not have any incentive to lower prices. The paper pointed to another working research paper that found ASO plans pay more for the same service, at the same hospital compared to those in fully insured arrangements.
“The empirical evidence suggests that insurers, because they lack the incentive, may not be negotiating lower prices for their ASO enrollees,” according to the study.
Even though employers may not have enough market power on their own, researchers offered up a solution: team up with state or local government employee groups to increase market power to obtain lower hospital prices.
El Camino Health severed ties with Anthem after pricing disputes forced the provider to kill its contract, making it the most recent in a cast of Bay Area systems to have troubles with the insurer, according to the Mountain View Voice.
Over the past decade, four systems, including Mountain View, Calif.-based El Camino, have had contract struggles with Anthem related to claims that the insurer is penny-pinching.
The result is a standoff, as Anthem has claimed in the past that regional healthcare costs are too high, explaining low service payment offers.
While Anthem provided annual payment increases, the rate El Camino requested would raise premiums and copays for businesses and families, the insurer told the Mountain View Voice. El Camino said Anthem’s terms are “well below” that of other insurers.
El Camino and Anthem are still negotiating, which could last up to between three and six months based on previous conflicts. Meanwhile, El Camino patients without critical healthcare needs are no longer in-network with Anthem.